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An Introduction to Business and Management: A Case Study on Primark

An Introduction to Business and Management: A Case Study on Primark

Executive Summary

Doing business needs a lot of expertise, of which one can assess the business situation and use that information in case of the decision-making process. Therefore, the managers of a business must know the strength, weaknesses, opportunities, and threats of the organisation to support the effective decision-making process. The report starts with the importance and the implication of the framework of SWOT analysis in the case of Primark, and some recommendations follow the discussion.

In the second part, the second question has been addressed by discussing the workforce’s motivation, which is a significant factor for success. In this section, the theories of McGregor and Herzberg regarding cause are used. In answer to question 4, the idea of the segmentation, targeting, positioning, and marketing mix are discussed concerning the case.

In answer to question 5, the idea of the market demand factors such as price and the other political, economic, and technological factors have been discussed. Finally, the report has been concluded after answering question 7, which includes the discussions regarding the factors of globalisation for Primark and the specific key factors from among them.

 

Introduction

A business process includes various vital functions to be appropriately done, usually finance, accounting, human resources management, and operations/manufacturing/service provision. Strengths and weaknesses in these areas are essential to assess the organisation’s condition to avail the opportunities and avoid the threats. Here, a case study has been given on Primark.

 

Question 1
Question 1a:  SWOT Analysis of Primark

SWOT stands for strength, weakness, opportunity, and threat. SWOT analysis is considered one of the most valuable tools that can be used for knowing about a business and making important decisions for that business (Morrison, 2012). Albert Humphrey is a scholar who proposed this model while working at the Stanford Research Institute (Vilet, 2014). From then on, the concept of SWOT analysis has been widely used across the world by scholars, business decision-makers, analysts, and managers. 

From the case given on Primark, the strengths and weaknesses of the organisation can be known. In addition to that, the potential opportunities and threats are also mentioned in the case. All these findings are listed in the SWOT framework that has been given as follows:

Strengths: 

  • The overall strategy of cost leadership is supported by technical efficiency and good relationships with the suppliers and the other stakeholders.
  • Ability to change the design on a frequent basis.
  • Already existing customer base.
  • Good standing in terms of the liquidity ratios.
  • Increased investment (almost more than 90%) in the assets than the previous year, but the organisation has still made profits.
  • Motivated management and workforce who are dedicatedly working on the growth of the business. This industry usually has a high turnover, but Primark has set different examples.
  • The organisation has ignorable long-term debt that makes the financial position of the organisation solid in the industry.

Weaknesses:

  • Low chance for shifting to premium brands.
  • Limitations in entering the online marketplace due to lack of enough resources and margin on products to support the shipping costs and home delivery.
  • Heavy dependency on the current suppliers.
  • Too much concentration on cost leadership.

Opportunities: 

  • Healthy growth of the apparel market worldwide.
  • Chance of introducing different tastes in fashion in the new target markets like the USA.
  • Many Asian countries are willing to supply better products for a lower price, strengthening the organisation’s cost leadership strategy.

Threats: 

  • Complex market characteristics in the USA
  • Very much saturated competition in the American market
  • Recent history of the failure of top European brands in the USA and threat of losing a big portion of business in the USA.
  • Fast-growing competition worldwide.
  • Entrance of Chinese, Indian, Bangladeshi, and cheap Vietnamese products into the industry.
  • The concern of the environmentalists against disposable fashion.
  • In case of ensuring cheaper sourcing, the organisation may go to Bangladesh or India and experience interrupted supply and pressure from the activists if situations like the collapse of factory-building in those countries happen again, which is almost a regular incident in such countries.  

Based on the findings listed above under the framework of the SWOT model, a summary has been given about the current situation of the organisation and where it should pay more attention in the next section.

Question 1b: Areas Primark Needs to Pay Attention

As every organisation has areas for improvement, some areas for improvement have been shown for Primark as follows:

In case of strength, the organisation is already enjoying cost leadership. But, the organisation can still go for cheaper but quality suppliers in Bangladesh, Myanmar, and India but not decrease the price. This will allow the organisation to keep a higher margin, allowing the organisation to have a higher profit and support the commencement and operation of the click and mortar wing of the business. This will also enable the organisation to overcome the current weakness regarding the absence of a reliable online operation. This will also address the organisation’s potential liability of becoming heavily dependent on the existing suppliers (Inderest, 2008). 

There are many threats in the market. However, the organisation should try to borrow some capital now to support the business in the USA. The organisation can also avoid a significant portion of the corporate tax in the USA by taking loans which will also increase the performance of the business in case of the return on equity (Peng, 2009). Finally, the company should try to avoid pitfalls like cutting prices more by giving sales promotions or by responding to aggressive price cut strategies of the local firms. 

 

Question 2
Question 2a: 

Though the organisation does not link their excerpt to any motivation theories directly, the famous motivational theories can easily be applied to the case study. Here, two theories chosen for discussion are Herzberg’s Two Factor Theory and McGregor’s theory of X and Y (Commonly referred to as Theory X and Theory Y separately) (Robbins and Coulter, 2005).

Two-factor Theory of Herzberg 

Frederick Herzberg suggests two factors, namely, motivators and hygiene factors, that the managers consider essential to be considered by the managers in motivating people. He means that the challenge in the work, status, the sense of accomplishment, sense of importance, owning the job, and participating in the decision-making process are the factors that boost up the level of motivation among the workers. He finds that the innate tendency of human beings is to create something, and the inner want of the human beings is to be celebrated (Mindtools, 2016). He proposes that the presence of these factors boosts the morale of the people to do better in the organisation, ultimately contributing to the organisation’s overall performance. 

On the other hand, he suggests that there are some factors without which it is impossible to get even the routine work from the people. These are salary, vacation, fringe benefits, promotion, etc., which he refers to as the hygiene factors. 

The organisations that can ensure the hygiene factors try to provide more motivating factors. This is precisely what happens to Primark. After securing the hygiene factors, the organisation is trying to boost the motivating factors for those who it thinks will contribute to the company with their talent. In modern-day practice, boosting confidence and workforce morale through motivating factors has become a common practice among the most successful firms in the world. For example, Google is one of the leading companies in the world as a whole. However, this company has a flexible workplace and fun-ensuring culture (Stewart, 2013). It believes that creativity and productivity are the key strengths for the company to excel. 

The same goes for Primark. The excellent point is that Primark also recognises the need for a good environment and flexible work environment for the employees to get the best out of the employees. One major part of this is making the employees and people interested in working in this organisation feel highly valued. It can also be said that the organisation, as a firm in the fashion industry, is on the right track in perceiving what the employees will expect from the organisation. 

 

Theory X and Theory by McGregor

Theory X and Theory Y of McGregor are considered two (or, according to many scholars) the most influential theories of the modern motivation concept. McGregor deduced two types of motivation from the year of studies that might work in different situations. The first one he talks about is theory X, and the second one is theory Y. These two theories show the two extremes about what the employees expect and how they need to be treated in the organisations (Robbins and Coulter, 2005). The assumptions of theory X and Y are given as follows in a table:

Theory X

Theory Y

People dislike work

People love to achieve through working

Want to be forced by others

Self-motivation for doing things in a good manner

Avoid Responsibility

Like to take responsibility and see this as a matter of pride

Lack Creativity

Eager to do and create something new

Need autocratic leadership

People like to own authority and distribute it among others; decentralisation and democracy are the key concepts.

Lack self-motivation

People get the motivation from the inner self

Need to focus on lower level cues for motivating workers 

People strive for something more meaningful and better than basic physiological and security needs.

(Businessballs, 2016)

From the above discussion about theory X and theory Y, this is evident that the organisation practices theory Y, which encourages people to work and practice their talent in case of contributing to the organisation and making their dignified living. However, there are also opposite examples in the industry. What is actually practised in the Bangladeshi garments industry, according to the case study, is theory X, where the workers have to work to earn just their living. They also need to work under the extreme risk of losing their lives because of fire or collapse incidents. Commonly, the practices in the manufacturing plants in the third world countries and the outlets and corporate offices in the developed countries are opposite to each other.

 

Question 3
Question 3a: The Segmentation Criteria and Targeting Strategy of Primark

Segmentation, targeting, and positioning are essential parts of the strategy of a business. Segmenting a market means dividing the market into such groups that the group members share some common characteristics among themselves that are also relevant to the decision-making for the business managers (Segmentation guide, 2016). After segmenting the market based on demographic, psychographic, geographic, or behavioural criteria, the managers then need to decide upon which market segment they want to serve with the best uses of the resources they have available for allocation (Kotler and Keller, 2012). In addition to that, they also need to design different marketing mixes for various market segments when there are multiple segments to which the managers decide to sell the products. 

As the company sets the ultra-low price for the products that it sells to the market, it can be easily understood that the company targets the people who do not have very high disposable income for buying premium and very fashionable exclusive products. Still, these people have a good taste that can be satisfied within a reasonable price range (Sloman and Sutcliff, 2003). Therefore, this is evident that the organisation has chosen income level as a segmentation criterion. In addition to that, it can also be assumed that the people who have an excellent cultural sense and taste of attires among the people who have lower-middle or middle-income level are the actual consumers of this group. Finally, age has been a significant factor that also played a critical role in defining the target market of the organisation’s products. Therefore, the main criteria that are matched for choosing this segment are income level, age, and cultural profile. 

As the organisation’s management found that it has strength in terms of cost leadership. It needed to find a market where it could exercise the competitive advantage that it had got. With this strength, it needed to find out a market trying to find out the quality attires for a low price. Therefore, it can be said that the company has been able to match the resources and the competence of itself to the targeting strategy and finally came up with the decisions to serve the chosen market. 

Question 3b: Using Marketing Mix

The marketing mix of a product, according to Kotler and Keller (2012), includes the concept of product, price, place, and promotion, which are also called 4P together. The marketing mix is the tactics that a firm uses to implement the marketing strategies for attaining the goals set by the management. However, the marketing mix is more targeted to ensure the proper positioning of the product. Positioning refers to creating an image of the product in the minds of the customers. All of the marketing mix components are targeted at ensuring the desired position of the product in the customers’ minds. 

In the case of the product, Primark develops such a product that falls into the fast fashion category because of being easily disposable and allows a person a few wears. However, the price should have been meagre to keep in harmony with the concept of the product, and the company managed to set a lower price. Now, the company is trying to spread worldwide by opening more outlets that show the distribution channel’s expansion. However, the company does not rely upon external distributors in the case of distributing the products. Finally, the company’s promotion does not involve much advertisement for now, but this company managed to ensure a POP (point of purchase) sales strategy. The low price offers of the company also attract a lot of customers to try its product and eventually stay with it. Therefore, the promotion of the company can be said to be based on more below-the-line activities.

 

Question 4: Factor other Than Price that Influence Demand

In economics, this is assumed that price is the determinant of demand while price and demand have an inverse relationship. If the price goes up, demand decreases, and vice versa. However, there are some other factors than the price that can influence demand. 

The price or demand of the complementary product affects the order of a product. If the price of a complementary product increases, then the need for this product will decrease with the demand for the complementary product (Small business, 2016). However, the relationship is exactly the opposite in the case of substitute products. But, there are lesser options that work as a substitute or complementary products in attires.  

Some other factors that influence the demand are the Political and Economic Environment. For political environment changes, such that –for instance- a country imposed tariff, embargo, or other barriers, the demand and price can be affected. In addition to that, cultural factors such as values and traditions are also related to the political environment of the country (Economics Helps, 2016). This is more evident in conservative societies such as the Arab countries and some parts of India, Pakistan, and Bangladesh when it comes to attire. The economic environment is a significant influencer. When there is an economic boom, the expenditure of the people increases, and they tend to buy more fashion products (Arnold, 2001). This is more applicable in disposable or fast fashion, where they repeatedly purchase and dispose of apparel. 

However, there are also technological and environmental factors. In the case of technological breakthroughs, more sophisticated fabrics are being developed regularly. This creates demand for products of new style and taste. However, a growing concern for the disposable products and the activities of the environmentalist groups are also potential factors that may convince the people to influence demand regardless of the price (Haque and Azmat, 2015)).

Therefore, the organisation needs to keep in mind that low prices may not always be the driving factor for boosting up or stabilising demands and should prepare for any situations accordingly. 

 

Question 5
Question 5a: Effects of the Drivers of Globalization on Primark

Some drivers of globalisation work for Primark to expand the business to some other markets worldwide. One reason is the Instagram effect, thanks to technological advancement that helps people share more and more, creates demand and strengthens the company’s brand value. In addition to that, the growing demand in the international market for fast fashion can easily be said to be a major driver (Hill, 2005). However, theoretically, one driver is the need for more economies of scale that also needs to find new markets to sell the excess of the products after meeting the demand in the domestic or regional market. 

Convergence of lifestyle, trends, and culture is another important thing that blurs the boundaries among the nations and now makes the whole world an attractive market for casual western dresses. This is also supported by the establishment of global brands. However, both of these are seen as the significant drivers of globalisation for any industry. This can also be said that the company is increasing its retained earnings that can be invested in a more attractive and fast-growing market in the world (Hill, 2005). Therefore, this will not be wrong to say that the organisation also needs to ensure that the capital is not stagnant; instead, it mobilises to yield more by availing more and more opportunities. 

Question 5b: The key Globalization Driver That Influences Primark

From the above discussion, ideas about the drivers of globalisation for the firm have been identified. From among those drivers, the need for economy of scale and the growing internal demand of the company to reach economy of scale by selling the products worldwide is a strong factor for the company’s globalisation. The scholars admit this of international marketing and economics that the firm that can expand automatically finds (of course, under rational and sensible leadership) out the places where it can open a stream of the supply backed by the production reached economy of scale. In the end, for a firm like Primark, it is very likely to focus on the economy of scale to ensure a greater volume of sales as it keeps a shallow margin. This will ensure profit for the company as this company believes in market penetration by launching products at a low price. 

 

Conclusion

People who are sitting at the top of the business organisations need to assess the SWOT of the company to determine the next course of action. The more they know the company and the industry, the more the chance of effective decision-making increases. However, the decision-making process must be backed by a motivated group of people who will implement the plans correctly and a good marketing strategy that will clearly define the objective and the way of working for the company. The finance section needs to adjust the resources and the cash flow. Moreover, the people planning all these must also know about the implication of the decisions in case of the expansion plans to the global market. Therefore, it can be inferred that the key to success for the organisation is keeping the practice of proper adjustment among the functions of all the departments. 

 

 

 

 

 

 

 

References

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Hill, C. (2005). International business. Boston: McGraw-Hill/Irwin.

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Peng, M. (2009). Global business. Mason, OH: South-Western Cengage Learning.

Robbins, S. and Coulter, M. (2005). Management. Upper Saddle River, NJ: Pearson Prentice Hall.

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Sloman, J. and Sutcliffe, M. (2003). Economics. Harlow, England: Prentice-Hall/Financial Times.

Smallbusiness.chron.com. (2016). Factors That Affect Demand Curve. [online] Available at: http://smallbusiness.chron.com/factors-affect-demand-curve-11258.html [Accessed 30 May 2016].

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