Assessing the macro – and micro – environmental forces that explain the success of John Lewis
John Lewis is a chain of upmarket department stores in the UK. In accessing its success, I critically looked at the macro- and micro- environments of the organization. Here the macroenvironment comprises three major sections: the economic environment, the social and demographic environment, and the technological environment. The purpose of this essay is to assess John Lewis’s success, in relations to the forces within these sub-environments. Furthermore, I assess the links these forces have with John Lewis’s microenvironment.
The Macroenvironment The Economic Environment Palmer & Hartley (2012) says that ‘Businesses need to keep an eye on indications of a nation’s prosperity’, (p. 10). This is due to the likelihood that during recessionary periods, people’s spending power on goods and services is likely to decline. This might not be the case with John Lewis, as its affluent customers have been ‘less impacted by the economic downturn’, (Dunkley, 2013). However, all customers are likely to become more concerned about whom they spend their money with.
Assessing the macro – and micro – environmental forces that explain the success of John Lewis Essay Example
Andy Street, the managing director of John Lewis says that ‘When money is tight you’re far more likely to think about who you spend it with…the results are based on one word above all else, which is Trust’, (Rowley, 2012). Street then talks about the success of John Lewis in this economy saying ‘In an economic climate which continues to be volatile, to have achieved these results is testimony to the strength of the John Lewis brand’, (Ruddick, 2013). Here the success of John Lewis arises from two main reasons.
The first is John Lewis’s main target audience, which consists of the more affluent customers who have proved to be resilient in this economic climate. The organization is able to maintain its success, as their customers’ spending power remains constant regardless of the trends in the economy. The second reason is the John Lewis brand, which is strongly built on trust. Customers are likely to turn to their trusted brands in this economic climate regardless of how affluent they may be. Note that trends in the economy are inevitable and organizations have to respond to these appropriately in order to succeed.
John Lewis can be seen as simply benefiting from its intended target audience for the reasons I have mentioned, but I believe that their investments in brand and trust buildings are the main reasons for their success. The Social and Demographic Environments ‘It is suggested that society is becoming increasingly concerned about the ethical values adopted by its business organizations’, (Palmer & Hartley, 2012, p. 186). Hence it is important for John Lewis to act and respond appropriately to this social trend. The recent tax avoidance for numerous organizations in the UK has had a beneficial effect on John Lewis.
Andy Street publicly expresses the need for the government to deal with multinational organizations, which are paying little to no tax in the country, (Batty, 2012). The publicity of this statement highlights the simple fact that John Lewis is a UK-based organization that are paying taxes, whilst the backdrop comprises other household organizations avoiding them. Street believes that the tax criticisms Amazon. com, Inc. has received spurred the sales of John Lewis saying, ‘I can’t prove it, but it definitely has been good, I’d call it background publicity for us’, (Ruddick, 2012).
The increased concern about organizations’ ethics goes beyond the headline-worthy issues such as the tax avoidance. Speaking of John Lewis’s organizational structure, Charlie Mayfield, John Lewis’s chairman, says that ‘Most shoppers will not be able to describe the chain’s unusual structure of the partnership but they’ll say that it’s a good place to work, that we look after our staff well’, (Clark, 2010). Palmer & Hartley (2012) says that ‘increasingly large segments of the population take into account the ethics of a firm’s employment practices when evaluating alternative products’, (p. 181).
Since John Lewis’s employees are their shareholders, they benefit from annual bonuses. The organization’s ethical employment practices had been publicly highlighted as Nick Clegg encourages other organizations to adopt the ‘John Lewis economy’, (Mason, 2012). Here John Lewis’s success is the result of two different responses to the social trends. Firstly, in the case of the tax avoidance crisis, John Lewis did not succeed from having to respond to any social trend, but instead benefiting from the failure for other organizations to meet them. The second is John Lewis’s unusual structure and its employment practices.
This garners a lot of public attention and propels the ethical brand image for the organization, contributing to its success. It is worthy to look at the demographics of the UK in relation to John Lewis’s target audience. In countries such as the UK, the older population is increasing as people are living longer. Studies have shown that older populations are more concerned about the ethics of organizations compared with the younger populations. I believe that this does not only account for more potential customers for John Lewis, but it also increases the trust values, especially due to the current economic and social environments.
This ultimately contributes to the success of John Lewis, as there is strong customer retention. The Technological Environment The rapid technological developments have altered the relationship between an organization and its customers. One example is that ‘Technological developments have allowed new methods of distributing goods and services’, (Palmer & Hartley, 2012, p. 10). This includes the booming online shopping as shoppers are ‘spending 12. 8% more on the Internet last year than a year earlier’, Neville, 2013). It also highlights that department stores are benefiting the most from this shift to online shopping (Neville, 2013).
Initially, online shopping appeared to simply revolutionize the way goods were bought. However, Wallop (2013) reports that the concept of online shopping and delivery did not work out well, as ‘Royal Mail, DHL, and other delivery services were not up to scratch’. As of during the month of December, ‘at least 225,000 parcels each day failed to arrive when promised. Another from Which? , found that 60 per cent of people shopping online shopping online last year had problems with delivery’, (Neville, 2013). This is when John Lewis responded to this problem with the development of Click & Collect.
This new scheme consists of placing and pays for an order online, then picking up the goods from the Customer Collection Point chosen by the shopper. Neil Saunders, the managing director of Conlumino says that ‘The reason click and collect took off over Christmas was because it solves the age-old problem of the ‘final mile’ of delivery. People just don’t like waiting in for deliveries, but most are happy to pick up from their local high street’, (Neville, 2013). This has proven a success for John Lewis as orders have doubled between 2012 and 2013, ‘accounting for 35% of online sales’, (Butler, 2013).
Karen Dracou explains ‘Customers love the fact that they are in control and can decide where and when to collect’, (Knight, 2013). Here the success of John Lewis is due to its ability to spot the shift to online shopping. Furthermore, it also notices the trends in problems regarding online shopping and delivery, and successfully meet customers’ needs by developing Click and Collect. Technology also means that it is easier to gain exposure of unethical business practice as there is ‘expending media availability and an increasingly intelligent audience’, (Palmer & Hartley, 2012, p.
186). Hence the trends in the technological environment are inextricably linked to the trends in the social and demographic environment. In this case, technology helps customers to know about John Lewis’s ethical practices and other organizations’ unethical practices, and thus propelling the success for John Lewis. Microenvironment Customers Customers have the utmost importance in determining the success of organizations as ‘no customers mean no business’, (Palmer & Hartley, 2012, p. 31). Hence it is vital to respond appropriately to the changing needs of customers.
Indeed this is what the analysis in the macroenvironment section has been trying to highlight. The Economic Environment means that customers, affluent or not, require a brand that they can trust. John Lewis succeeds by providing the customers with the trust values they are looking for in order to spend. The Social Environment means that customers prefer to shop from ethical organizations and John Lewis had gone to highlight its ethics, both implicitly and explicitly. The Technological Environment means that customers require new ways of purchasing goods and John Lewis’s Click and Collect has been proven a success.
Suppliers The relationship between John Lewis and its suppliers contributes to its success in a number of ways. The available technology means that goods can be made overseas, at a lower cost. Because of the customers’ increased concern in organizations’ ethics, John Lewis had improved its relationship with its suppliers. John Lewis is aiming to invest ‘at least ? 500,00 over the next three years in projects that will boost sustainability within its supply chain as well as education and employment projects’, (Butler, 2012).
This includes a project of providing a training program for cotton farmers in India. Palmer & Hartley (2012) says that society has rising expectations for organizations to be friendly to their local communities by supporting their local suppliers. John Lewis initially invested in these projects as the supply for cotton was becoming scarce as prices were raised. Hence by doing this, John Lewis benefits from its relationship with the suppliers in two ways. First is that there is an increased level of security in their supply of cotton.
Second is that the organization also benefits from helping local suppliers, which in this case is the cotton farms in India. John Lewis benefits from meeting society’s expectations and is seen as an ethical organization. Competitors In a highly competitive market, it is vital to understand you competitors. As I have mentioned, John Lewis had adopted several strategies in response to the trends in the macroenvironment. These strategies are the main reason why John Lewis is ahead of its competitors. Other reasons may include the speed of adopting these strategies.
One example is the shift to online shopping and John Lewis responds speedily and successfully to this, putting it in the dominant sector in online shopping. This is a First Mover Advantage as it is one of the first organizations to successfully shift to online shopping. Hence this could be another reason for the success of John Lewis in relations to its competitors. Conclusion In summary, I have critically assessed the macro- and micro- environments of John Lewis in trying to understand its success.
Within the macroenvironment, I have analyzed how John Lewis has successfully responded to the changing trends within: the economic environment, the social and demographic environment, and the technological environment. It is the appropriate responses to these trends that made John Lewis successful as they are all linked to what the customers need. I have also made links between the macroenvironment and the micro-environmental factors: customers, suppliers, and competitors. John Lewis has to also have appropriate relationships with these other organizations and individuals in order to be successful.