PESTLE and Porter's Five Force Analysis of Advertising Industry and IKEA's Business Strategy
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Added on 2019-09-23
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This report analyzes the advertising industry by studying the macro and micro environmental factors. In order to do so, PESTLE Analysis and Porter’s Five Forces Analysis of the advertising industry is conducted. In the other section, Porter’s Generic Strategies have been explained along with their application in IKEA, one of the leading furniture companies.
PESTLE and Porter's Five Force Analysis of Advertising Industry and IKEA's Business Strategy
Added on 2019-09-23
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ContentsIntroduction...........................................................................................................................................2PESTLE Analysis..................................................................................................................................2Porter’s Five Force Analysis.................................................................................................................4Bargaining Power of the Suppliers....................................................................................................4Bargaining Power of the Buyers........................................................................................................4Threat of New Entrants......................................................................................................................5Threat of Substitutes..........................................................................................................................5Rivalry...............................................................................................................................................6IKEA’s business strategy for their products and services using Porter’s generic strategies...................7IKEA’s Successfulness in the Industry..................................................................................................9References...........................................................................................................................................101
IntroductionDue to rise in competition in almost every industry, advertisement has become a mandatoryaspect of the business strategy of most of the firms. Advertisements can be used at severalstages like the introduction of a new product, promotion of an existing product, making theusers aware if the improved version of an existing product and also sometimes to improve theoverall brand image of the company. Advertisements provide customers a chance to carefullychoose from the large amount of options available to them on the basis of their requirements.Advertisements can be done from business to customers as well as from business to business.Print media like newspapers, magazines, newsletters, hoardings have been the traditionalmodes of advertisements. Due to advancement in technology, advertisements have gainedpopularity among social networking sites and digital media.The purpose of this report is to analyze the advertising industry by studying the macro andmicro environmental factors. In order to do so, PESTLE Analysis and Porter’s Five ForcesAnalysis of the advertising industry is conducted. In the other section, Porter’s GenericStrategies have been explained along with their application in IKEA, one of the leadingfurniture companies.PESTLE AnalysisPolitical and legal factors affect the advertising industry by regulating the content of theadvertisement. In certain countries the advertisement and promotion of alcohol, cigarettes, etcare considered illegal. Additionally, in some countries the places of and medium ofadvertisement are also regulated by laws [ CITATION AHo15 \l 1033 ].2
Economic issues have a great impact on the advertising industry. For instance, in case ofrecession, the companies tend to get rid of the advertisement campaign more than any otheraspect of their business. In financially tough times, advertising is the first one to leave thebusiness. This breaks the link between the brand and its targeted customers. Recession alsocomes as a challenge for bigger advertisement agencies as the brands shift to smaller andcheaper agencies in order to cut their budget on the advertisements. This forces big budgetcommercial agencies to lower their prices significantly or they might just run out of business[ CITATION Stu17 \l 1033 ].Social values have always been a key driving force in the advertisement industry. Currentlysocial networking has become a very integral part of the society. This has opened newplatforms for advertisement. A lot of big brands chose social networking sites like Facebook,Instagram and Twitter to introduce and promote their products and services. All thesemediums of advertisements are more successful than print media and other traditionaladvertisement modes because of a wide coverage of customers. Also, these platforms do notrequire a lot of monetary investment. Another social factor that affects the advertisementindustry is the society’s obsession with celebrities. Companies tend to tie up withadvertisement agencies that have good celebrity connections, to endorse their brand. Technological advancement has had the biggest impact on advertisement industry. Digitaladvertising has gained huge popularity over years due to technological development. Thismode of advertisement helps the company to keep a track of what is being accepted by thepublic and what is not. Also, due to easy accessibility of internet on mobile, every brand isdeveloping their personalized brand applications where users can go through various productlines offered by the company, buy them and also review them on the basis of theirexperience. This has helped the businesses to build a direct contact with their customers[ CITATION NHa12 \l 1033 ].3
Environmental aspect does not influence the advertising industry in any major way. Theenvironmental aspect expects the industry to make the customers aware about theenvironmental implication of their advertised products. Also, the advertising agencies areexpected to use environmental friendly methods to advertise.Porter’s Five Force AnalysisBargaining Power of the SuppliersEvery business requires raw material, labor and other services to run its operations. Theseresources are supplied to the business by a third party. This party becomes the supplier ofinputs for the company. The suppliers can make or break the business with the price andquality of the products offered by them. This power of suppliers over the business is knownas the bargaining power of the suppliers. The supplier would always want to sell its productsat the highest possible prices. If the number of sellers is limited, the bargaining power of thesuppliers tends to be high and vice versa. In advertisement industry, there are a number ofcompanies offering inputs like animation personnel, models, costumes, hoardings and otherinputs, that the industry has a low degree of bargaining power of suppliers.Bargaining Power of the BuyersThe bargaining power of the buyers can be explained as the power that customers have tomake the business more or less profitable. The profitability of the business is directly relatedto its customer, but having a few customers gives rise to the bargaining power of the buyers.For instance, if a business has a small number of buyers who tend to contribute to largeportion the business’s profitability, then these buyers can force the business to sell itsproducts and services to the buyers at a lower price. Companies with fewer customers havehigh bargaining power of buyers. In advertising industry, there are a number of small4
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