Business Environment, Strategies, and Market Analysis

Posted on Dec 15, 2024 in Economy

Business Environment and Key Factors

The general environment reflects major trends in a company’s external reality. These factors are farthest from the company and often indirectly affect all companies. They include:

  • Legal and Political: All that implies a position of power in our society at different levels.
  • Social and Demographic: These are part of the social and cultural models, as well as aggregate demographic characteristics of a corporation.
  • Technological: Stimulated by favorable economic consequences to the use of technology to compete.
  • Economic: These affect distribution, consumption, and production methods.

Specific Environment

This consists of factors that directly affect a specific sector. These include:

  1. Degree of rivalry.
  2. Threat of entry of new competitors.
  3. Threat of substitute products.
  4. Negotiating power of suppliers and customers.

Globalization

Positive aspects:

  • Growth within free trade areas.
  • Global economic growth.
  • Openness and integration of developing countries into trade.
  • Responsible consumption patterns.

Negative aspects:

  • Power of multinationals.
  • Widening gap between rich and poor.
  • New forms of labor exploitation.
  • Tax havens.
  • Disproportionate application of natural resources.

Financial Investments and External Funding

Investments: Financial means used in the purchase, renovation, or improvement of property and plant, aimed at increasing the productive capacity of the company.

Short-Term External Funding

  1. Loan: A contract by which a financial institution lends a specific amount of money.
  2. Credit: A contract by which a financial institution opens a line of credit, and the company can draw down funds as needed, up to an agreed limit.
  3. Trade Discount: A financial operation in which a bank advances the amount of a letter from a client that has a maturity at a later date.
  4. Commercial Credits: These emerge from suppliers due to the postponement of payment for purchases.
  5. Factoring: Selling the company’s receivables to a business or financial institution.
  6. Other Outstanding Items: Items covering pending payments caused by commercial traffic.

Long-Term External Funding

  1. Leasing: A lease with a purchase option that allows companies to acquire assets and liabilities for a determined period by paying a fee. At the end, the lessee may return the property or renew the lease.
  2. Bonds: For very large capital obligations, companies can divide those amounts into loans by issuing debt. These can be subscribed to and disbursed by lenders. The face value is the amount that appears in the title and represents the loan amount granted to the company. The issue amount must be paid by the person who acquires the title. The issue and redemption amounts may not match, making the investment attractive.

Business Strategies

  • Cost Leadership
  • Differentiation
  • Focus and Segmentation

Taxes

Direct Taxes

These directly tax the economic capacity of the taxpayer, related to the amount of revenue.

  1. Personal Income Tax: Taxed on income.
  2. Corporate Tax: Levied on the benefits of legal persons.
  3. Tax on Economic Activities: Levied on business professionals.

Indirect Taxes

These are consumption taxes paid by taxpayers.

  1. Property Transfer Tax
  2. Stamp Duty
  3. Special Taxes

Business Structures

  • Holding: Taking stakes in one company over another.
  • Cartel: Grouping firms in the same phase of a production process.

The Entrepreneur

The entrepreneur is the person who makes the decisions necessary to carry out the company’s activity. They are responsible for ordering and directing the physical and human elements that make up the company, assuming the risks arising from their decisions.

Market Terminology

  • Potential Market: All current users plus those who can be captured through an effective marketing policy.
  • Profitability: Measures the relationship between profits and the resources used for their production. It indicates the company’s capacity to produce benefits in relation to the resources used. Profitability is not simply whether the benefits are higher or lower in absolute terms but comparing these benefits with the resources used.
  • Cooperative: An association of natural or legal persons having common interests or needs, developing a business, and imputing economic performance to cooperative partners once they have served the community funds. The cooperative may have partners or associates.
  • Market Development: A chance for business development within the expansion strategy, that is, internal growth of the company. It involves introducing a product or product line’s current business into new markets, seeking an increase in turnover.

Market Classification

1. According to Expansion Possibilities

  • Current Market: Today’s consumers of a specific product.
  • Potential Market: Current customers and those that can be captured with adequate marketing.
  • Trend Market: That which is expected in the future.

2. According to Buyer Type

  • Consumer Market (Private): Individuals who buy for their own consumption or their relatives. They can be classified by sex, age, social status, volume of purchases, loyalty, etc.
  • Industrial Markets (Organizations): Companies. Their demand is derived from consumer markets. They acquire goods or services for incorporation into their production processes.
  • Public Organizations: Like companies, their demand is derived, but their activity has an economic purpose.
  • Other Institutions: Professional associations, cultural, charitable, sporting, political parties, etc. These organizations buy according to an objective, rational process that is long and complex, where bargaining power is greater due to higher volume purchases. Their demand is more concentrated, derived, inelastic, and subject to greater fluctuations.

3. According to the Number of Competitors

  • Monopoly: There is only one supplier and many demanders. Entry barriers are numerous. For example, fixed telephone service.
  • Oligopoly: There are few suppliers and many applicants. There are considerable barriers to entry. For example, the automobile market.
  • Monopolistic Competition: This is the most common situation. There are many suppliers and demanders, with differentiated products. There are few barriers to entry. For instance, the appliance market, food products, clothing, etc.
  • Perfect Competition: The number of buyers and sellers is very high, but the product exchanged is homogeneous, such as the grain market or securities market. There are no entry barriers.

4. According to Product Type

5. According to the Intensity of Supply and Demand

Market dominance will be held by sellers or buyers, depending on whether demand is greater or less than supply. These two scenarios are:

  • Seller’s Market: Demand exceeds supply (very strong demand, high prices).
  • Buyer’s Market: Supply exceeds demand (very strong bid, low prices).

Marketing Strategies

I. Undifferentiated Strategy

Ignores the existence of different market segments. The company targets everyone with the same strategy, ultimately meeting different needs and demands with a single commercial offer.

II. Differentiated Strategy

Offers products tailored to the needs of each target segment, using different trade instruments. This strategy can substantially increase total market demand, but the costs to the company are higher.

III. Focused Strategy

The company detects the existence of several important market segments but may not be able to meet all of them appropriately due to a lack of resources. Instead of covering the whole market, it concentrates on one or a few segments.

Dealer Brands

Also called “white” brands. Used mainly for food products and drugstores. Major retailers sell products with their brand while not producing them.

Price

Price is not only the amount of money paid to obtain a product but also the time used to get it and the effort and discomfort required. Pricing strategy relies primarily on the company’s objectives (benefits, penetration, image, etc.), as well as the product type, existing lines, competition, product life cycle, etc.

A) Price Level

Price has a strong impact on product image. A high price is often synonymous with quality, and a low price, the opposite. It is flexible but conditioned by the market rate according to the number of bidders.

Pricing Models

  1. Cost-Based Models
  2. Models Based on Competitors or the Market (supply and demand)
  3. Models for New Products: When launching a new product, a skimming or penetration strategy can be applied.
  • Skimming: Setting a high price initially, along with a major investment in promotion, to attract the “cream” of the market. Prices are lowered later to attract more price-sensitive segments. Suitable for innovative products, insensitive to price, and without the possibility of new competitors entering.
  • Penetration: Setting a low price from the beginning. Suitable for situations contrary to skimming.

Different pricing strategies seek to exploit consumer heterogeneity to increase sales volume. Sometimes the same product is sold at different prices depending on the consumer, date, or place of sale.