The business environment of present world is so competitive and complex that the entrepreneurs and the business people are finding it almost difficult to sustain in the market and get expected profit. The most critical fact in marketing sector of business is the increasing bargaining power of the customers and the customer oriented nature of business make the business environment more unstable. For these reasons the business always tries to anticipate the customer expectation and perception and try to design their offerings according to that. But the matter of thought is that the customer expectation is changing all time and to predict what they are thinking now is also a difficult job. The main cause is to communicate with them and to make them convince about any certain product is not only difficult but also impossible for some instances. This report will concentrate on the present furniture industry and find out whether these factors above are true in case of the furniture industry. To make this study easier a company will be selected and the assessment will be done for the company which will represent for the industry as well. The report is divided into two main parts. The first part is a type of descriptive research and the second part is the enhancement for the research.
The selected furniture company is Furniture Realm Ltd. It is a contract supplier of furniture to café, restaurants, pubs, bistros, clubs, hotels and many other retailers. FRL1 has its head office in Weston super mare in Somerset. Customers always demand as to deliver procurement service along with work as a supplier of furniture. It is trying to design its products and services according to what their customers ask for. The nature of the customers is mainly of business and thus FRL is operating in a business to business environment. Their business is quite customer oriented and the design of the furniture is instructed completely by the customers. FRL tries to become customer driven so its use of catalogue in case of getting order is not in practice. This practice satisfies the customers and for this reason, FRL is one of the best B2B furniture providers.
According to the company profile, the main theme of the company to get customer satisfaction and these are the quality, service and the price of their products. Besides this, the quality has to match with the British fire and safety regulations and to ensure environmental regulations so the furniture is manufactured from bio-degradable and replaceable materials. The wood are collected with a promise of re-forestation and all the timbers are collected from mature trees of the forest. On every product, it ensures quality standards of its own and thus defines the product specification. The service rendered by the company with the best intention to serve the customers. It is determined to give proper attention to the service quality and design the delivery and installation with the intention to get maximum customer satisfaction. The pricing strategy is also directed to the customers and they treated the price as a value for money from their customers against their service.
From the overview of the company, it is clear that the company is totally directed by customers. But now the dramatic change in the business environment due to global recession, the demand for the furniture are changed in a decreasing manner which keep the company in pressure to survive with good profit return.
In a changed business environment, marketers of any types of goods have to develop specific strategy and adopt their knowledge in the particular markets. The market research is a way to systematic design, collection, analysis and presentation of data and results which is relevant to a specific market condition which is experienced by the company. A simple marketing research has done to discuss the affects of the demand change of the furniture industry.
Background of the research
The FRL has suffered serious business problem in its trading environment as the demand of its products is changed. The company has the objective to retain its existing customer and to attract the new. Its potential customers are deprived from expansion of business and they are just waiting for friendly economic conditions. The total economy now experiencing some critical down turn and the effect are also put upon the furniture industry like other industries. To do business in such an economic condition is almost impossible and thus most business transactions are now become stand still. This situation is termed as recession and economists think it will recover soon. But the company is going to experience the diversified demand from the customers. The customers, who were ordering for furniture in bulk amount previously, do not ready to spend enough now and order whatever is most essential. As the company targets to get back the satisfaction of the customer it will have to design its quality, service and pricing strategies differently for the present differentiated situation. The company is trying to anticipate the present situation of the customers, forecast their demand, set new strategies regarding their operations and to design their future furniture according to this change.
The primary objective of this research is to find out the effects of the dramatic change of the trading environment in the operations of the company and to show the change in the demand of customers in the furniture supply. The secondary objectives are additional outcomes expected from the research. These are:
- To anticipate the customer demands: What the present customers want?
- To determine whether the perceptions of the customers are changed or not.
- To find out what are the features of the furniture to attract the customers.
- To find out strategies for cope up with the present changed situations.
- Research methods: To gather the relevant and essential information there are some useful research techniques. There are various types of research approaches. Such as observational, focus group, survey research, experimental research and descriptive research. Here the survey method is descriptive research. Descriptive research is a way to conduct a research based on some facts to describe characteristics of some customers or any phenomenon. This type of research is designed to answer the questions regarding who, what, when, where and how. As the question of interest is to answer the question what to be done to match the production of furniture against the changed demand of customers, it demands a descriptive research.
- Data sources: Data sources mean the way to collect information. The information must be relative, accurate and useful. There are various types of data sources used in a research. Basically the sources are divided into two categories; primary source and secondary source. Primary sources are those which are used for the purpose of the relevant research and never used before and the secondary sources are the published sources which are used previously for another research. The data sources are mainly the existing customers and the customers who leave the tendency to order bulk amount of furniture. The main reason behind these selection is the customers can say correctly hat they want and what make them live apart from buying large amount of furniture. That is this research is using primary data sources.
- Data sample: Sample means the cluster of the targeted customers who will be questioned about the question of interest. There are many ways to sampling for the research. As this is a descriptive research, the sampling plan is simple and the more the customers can be communicated the more the research will be accurate. Here about 30 customers were communicated.
- Data collection: The data collection was based on telephone interview. Most customers have entitled to the company along with their address and telephone no in the directory of the company. The telephone numbers were collected from there. All customers were asked questions regarding their change in demand. The questions were designed to collect information about what are the key factors which prohibits the customers from ordering in bulk unit, what are the factors which will bring back the customers to order like previous and what they actually want from the company. The customers were provided with such environment that the correct, actual and unbiased data collection is ensured.
- Analysis of data: This is a process of extracting findings from the collected data. After collection of data the analysis of data has to be done. As the questions were simple and the samples were small, the collected data from each customer were analysed separately and then the results were combined according to the nature of the data. Different customers were answered the questions differently and all the answers were taken to consideration. These answers were taken as the base for the analysis and the redesign of the service, production of furniture and the pricing strategies. These analyzed results are base of the findings drawn bellow.
From the analysis of data there are some facts which have been found. From these findings the relevant findings are:
- The present recessionary economic situation is the root cause of the down turn of the furniture business. Customers are now treating business as difficult tasks and they have fighting for survive in the business. The most of the customers are business entities and for the loss they are experiencing due to the economic downturn they have no money left to order bulk amount of furniture.
- The price of furniture is rising day by day as results of the price increase in the raw materials of furniture are increased. As we mentioned the losing situation of the customer, they can not afford the increased price of the customers. Most of the customers are waiting for the price decrease of the furniture.
- The customers are considering the quality also. As the economic downturn is also effected the furniture industry, the quality of the products are also decreased and thus the customers are not ready to get low quality products against high price.
- The company had to do a decrease the wage of the labor and as a result many labors leave the job. The resulting consequences were the decrease in the service quality. Many customers claim that the delivery of the products were not in time and for this reason many customers are not satisfied enough to remain with the company.
Present condition of furniture industry
As the report finds through the research that the furniture industry is also now a victim of global economic crisis, this industry is also in very bad situation. Most furniture companies are facing increase price of raw materials, increased labor cost and depriving condition of getting bank loans. The results of these consequences are the low level of quality of products, decreasing in service quality like delivery in time and finally losing the loyal customers. There are almost no help from the government and the associations of the furniture companies also can not do anything. For these reasons the seriousness of these consequences are increasing day by day.
Existing and likely changes
The changes bring out by the recession are not only for a limited time but the effect will expected to be remained for some more years. Though it is forecasted that the economy will developed in this year, but the consequence will be experienced for some more years.
The existing changes according to this situation are discussed in some of the earlier sections. Besides these, some more changes also happened. The market of the furniture become unstable and the profit margin becomes almost negative. Customer oriented nature is now of no use and thus the main target is to survive. Thus the nature of operation is changed.
There may be some changes which are not present but can be anticipated that these will happen in future. Firstly, the customers can become a loyal customer of substituted products like steel and rot iron made furniture. Secondly, the suppliers of the raw materials can store the raw materials and made the demand of the raw materials higher. Finally, the labors, which are not waged enough will turn out from the company and probably join to other industries which have lot of wages to give up. These are some of the likely changes which will have negative impact.
Examine the external operating environment
This company is very popular in business to business market. That is why, it is important for analyzing external environment of the market. The external environment is effecting on the business operation and maintenance of profit generation in various ways. If any business can maintain the external environment properly, then it can run its business in an effective way. For the Furniture Realm, it is important to analysis the marketing research by various methods and tools available in research programs. Some tools are selected for this study is PEST Analysis, Porters 5 forces model, BCG matrix and Product Life Cycle (PLC).
PEST (Political, Economical, Social and Technological) Analysis
In every business, the operation of running business is depended on its political, economical, social, and technological factors related with production. Furniture Realm is not difference from others. Without this analysis, the company can not move forward in the marketing research. For this reason, it has to analyze PEST for generating external information about its business. The factors related with PEST analysis in Furniture Realm is given below:
In the political factors of business, Furniture Realm has to obey the rules of environment ruled by governing bodies of the region. They are using sustainable materials for reducing the harmful effect on environment with simplification and recyclable approaches in operations of manufacturing. They are also using eco- friendly steel and timber suppliers concentrating on future impact first. Their major concern is on recycling timber and metal of used furniture, in refurbish, in re-sell, or in recover past frames. Mostly they are producing new furniture with reclaimed or recycled materials. The company also has to follow in accordance with governmental regulations of taxation policy, trading policy, employment policy, share holders policy, and recycling policy of furniture to maintain the terms of political factors.
The Business and Institutional Furniture Manufacturer’s Association is shown that, the business to business or office furniture market is dropping its business 11.6% in production of 2009. The furniture market’s global economic system is very unstable to forecast and determine the demand of customers. The recession of economic situation is downing every day, and Furniture Realm declines 12% on shipments of raw materials. According to the forecast of BIFMA about office furniture downturn is 0.6% in 2008, which is standing 6.8% at the end of 2008, which is very unpredictable for business to forecast the economic factors. For this reason, the Organisation has to focus on the upcoming future and demand of production to avoid loss of business.
As social factors of Furniture Realm, it has to ensure that, the users of furniture are being joy, amused, reflected moment of the office environment. The social choice and need is very important for the Organisation. It also has to focus on cultural and religious impact of furniture on society. For this reason, the development of new furniture must be recognized and acceptable by societies with distinct heritages. The company has to focus on the office furniture by examine the designs, materials and quality of furniture to work for at least 10 to 15 years. They also focus on the environmental impact of furniture is whether appropriate or not.
The technological development of furniture is obvious to hold the trends of consumers’ demand and mental map of furniture. The technological use on furniture is very common in recent days. Some high tech companies are using robots in interior designing and manufacturing and designing furniture. Some software is innovated to design furniture to remove the traditional picture of furniture from customers’ mind. This software is also used in finding out injection, dreary and dominating low end or non-finished products in the field of office furniture.
Furniture Realm is not far from technological development in furniture. They are using computer aided technology and digital design programs for creating new forms of furniture, which are totally different from traditional designs. These digital technologies are changing production processes and allowing new innovation of products for customers.
Porter’s Five Forces Model
For another market research approach for external market analysis, Porter’s five forces model is an appropriate approach to know the market conditions of Furniture Realm in contrast with potential entrants, buyers, substitutes, suppliers and competitors are main factors to determine for analyzing by the company. This approach is shown by following figure:
The major threat of Furniture Realm is possibilities of new entrants in the market, as the market is unregulated and open to all business and companies. The new entrants can make the market of this company more difficult to operate in the market.
As UK is a potential market for furniture, furnishing and interiors manufacturing industries, the opportunities for entering in this sector is being more profitable for entrepreneurs and businessmen. The new skill and high technology of furniture business is more lucrative for new entrants in production of new design.
Also, the skilled workers are available in market at low labor costs, which would attract and prepare young entrepreneurs to join in this business effectively.
There are already more than 20,000 companies in UK furniture industry, where more than 150,000 people are working. So, the opportunities for potential entrants are huge interest with craft jobs, interior and furniture designer, and people working in timber, plastics and metals are also involved.
The prices of furniture is dramatically decreasing because of recession, thus, the demand of this business sector is not lowered.
The customers of Furniture Realm is mainly the business customers, who are looking for not only design, but also durability, serviceability, design, and comfort of furniture used for office or business purposes. For this reason, to hold the customers’ demand based on different dimensions is very difficult to identify. The company must develop some strategies to ensure the satisfaction of customers by improving customers’ services. The strategic performances will ensure to keep existing customers and attracting new customers in UK market.
The UK markets of furniture are covering 2500 towns and cities by providing office, garden, and home furniture. But, for Furniture Realm is focusing on special purposed furniture, like public setting and office interiors. It is also designed excellent ranges products to meet the demand of customers.
The furniture manufactured by Furniture Realm has common quality, not in design, but can motivated customers easily, which are, hospitality, stylish and comfortable, extremely durable, appearances, practical, relaxed and enjoyable.
This company is also manufactured trend ranges of furniture, which is enough to impress customers. The delivery of furniture is offered within 14-28 days of ordering, which is carried by company’s professional delivery truck.
These approaches are taken by Furniture Realm to attract new potential customers and to keep existing customers.
The substitutes are not less risky than competitors of the company. For differentiate them from actual company, it has to develop some strategies to beat the substitutes in competitive market. The substitutes are also working as benchmark for the company, which helps to keep pressure on the operation of the business.
This is one positive side is that, the probability of substitutes in furniture market is impossible. The current trends of furniture in global market are frequently changing with the demand of customers. The demand is increasing for innovation of new technology and design in furniture industries.
The threats from substitutes can be raised with changes in trend, for an example, if the company is using other materials than wood, like plastics, glasses etc., and then the timber products are becoming as substitutes for the company. So, for Furniture Realm, the substitutes can be attacked only if the materials of production are changed.
The bargaining power of suppliers is most significant in the manufacturing of Furniture Realm. The primary suppliers are related with raw material and electricity supplies, which is most important in manufacturing. Also, the market of substitutes are zero, the suppliers current influence is negative on Furniture Realm.
The territories of forests are under government regulations, for that, the economic exploiting of government are higher about to 81%. The determined price of raw materials by Government is too high to bear. It also disables Furniture Realm in planning of long term manufacturing.
The oak price is lowering day by day, which is increasing demand in global and regional market of forests resources. On the other hand, the price of fir and spruce is not changed because of low demand and poor sales in global price levels.
Suppliers of Furniture Realm are acting as a partner in competitive environment with trust, reliability and confidence with each other.
The industrial rivalry is raised in furniture manufacturing companies very rapidly. It is mentioned that, there are 20,000 existing manufacturing companies of furniture in UK, which is generating economic growth about 340 million euro annually. The employees of manufacturing industries are emphasized significantly in competitors’ profits.
Furniture Realm should take reservations in the level of market concentration and competitive pressure in manufacturing of furniture. The regional competitors are specialized on furniture production and primary processing. The demand of timber is engaged with competitors with higher level of investments by competitors. The fixed costs of company are increasing for technological changes and competitive pressures, which is major impact on strong influences of rivalry towards Furniture Realm.
This furniture company is facing competitive rivalry in large scale. Some major competitors of Furniture Realm are given below:
- Street Furniture
- Turkey Furniture
- A/V Furniture & Mounts
- Teak Furniture
- Outdoor Leisure
- Philippines Furniture
Boston Consulting Group (BCG) Matrix
Boston Consulting Group (BCG) Matrix is a strategic portfolio planning, where the business units of production is classified into four groups based on market growth (Cash usage by company) and market share (Cash generated by company) are comparing with competitors. This is helpful to determine the business positions for determining profitability position of company. The following figure will show four specific groups of BCG Matrix.
The four groups of BCG Matrix are:
- Cash Cow: When the company is in the position of lowest market growth rate, but relatively high in market share. It is generating maximum profit from its business, but lack behind in capturing market and growing in customers mind. These companies are generating profits but not recognized by customers or customers are not aware about the brand.
- Dogs: With low market share and market growth, these companies have in lowest level of positioning in the market. The market of these companies is about to ending up its operation and not accessabile competing with other manufacturers.
- Question Marks: These companies are in low market share, but high in market growth rate. These organisations have opportunities in market, but having small profit from its business. Although market growth rate is high, but the positioning and brand name is in confused situation in customers’ knowledge of company.
- Stars: This Company is in highest position in market growth rate and market share. This is optimum level that a company can reach by beating up competitions.
After analysing BCG Matrix, it is identified that, Furniture Realm is “Dogs” position in the market. But there are lots of opportunities to increase the market growth and market share of the company by following tactical and strategic decisions, which would be described in the further study.
PLC: The product life cycle of the furniture is interesting. There are five stages of a product life cycle. These are:
- The embryonic stage
- The growth stage
- The shakeout stage
- The maturity stage
- The decline stage
In the embryonic stage the products are remain at an introductory stage. In this stage the product experiences little competition, new technology, high capital investment and comparatively high price. Here the production is bulk in amount. Here the demand for the product begins to grow though the products are unfamiliar to the users. The production experiences unprofitable stage. In the growth stage the product was started to accept by many other potential users. The name of the product becomes familiar and thus the brand associations are started to build. The production has been experienced by a high demand, high production and high sales. Thus the high profit turnover is also a common phenomenon in the growth stage. The use of verified technology is a common scenario here. In this stage the competition starts to be tightening. The shakeout stage is a stage where the product demands variations. Customers want verified products and to satisfy their needs various new dimensions are added to the product. Here the demand, production and sales grow in an increasing rate like the previous stage. So, profit also increased. The maturity stage is one where the product becomes a saturated nature. It is the pick point of the life cycle of the product. Here the demand, production and sales remain constant and no new customers are attracted to the product. Here the profit is in a marginal rate. The last stage is the decline stage where the demand, production and sales of the product are started to decline. It is the death stage of the product.
The furniture industry is now on a maturity stage as the products are well accepted by various types of customers, the demands are not increasing and the sales are started to decline.
Strategic and tactical marketing options
The products of Furniture Realm are now in expected products which are trying to get the level of customer expectation. The strategies must ensure the products to become an augmented product. Augmented products are those which exceed the customer expectations.
There are basically four strategies available for it. These are: Market penetration, market development, and product development and diversification strategy. Market penetration strategy is a strategy where the existing products are offered the existing market. Market development is a strategy where the existing products are offered to a new market. In a product development strategy the new products are offered to existing market segments. The diversification strategy is one where the new market segments are offered by completely new products.
Segmentation and position strategies:
Market segmentation can be done through many ways. One way to segment the market based on the preferences. There are three strategies to segment based on preferences. These are homogeneous preferences, diffused preferences and clustered preferences. In homogeneous segmentation the preferences of all the customers are the same. In diffused segmentation the preferences are different and in cluster the segments are many clusters of customers where in the cluster all customers have the same preferences but the preferences of one cluster are different from the other.
The other types of segmentations are based on some common characteristics of the customers. These are geographic segmentation where the location of the customers are same, demographic segmentation where the demographics like the age, gender are same, psychographic segmentation and behavioral segmentation.
The segmentation strategy for the Furniture Realm should be cluster preference segmentation and psychographic segmentation. The first one is for the reason of the diversified preference of the customers. Some customer prefers low price, some customers prefer high quality and some prefer delivery in time. For these three segmentations based on these three characteristics should be made. The psychographic segmentation is used in a sense that the customers have different psychological attachments. Some are sophisticated in case of quality and some are serious about the cost minimisation.
Identify and discuss the key themes:
The key themes which are identified through out this report are:
- The alarming condition of the furniture industry including decrease in demand, losing profit margin, decreasing quality, reducing service capability, labor cut, lack of getting loans and lack of help from the government.
- The industry is oversaturated, that is there is more supply of furniture than demand. According to the theory of economics when the supply is greater than the demand the price is to be increased. But this theory does not work here because the price of the furniture is affected by many other factors like price increase of the raw materials.
- The implications of these themes can be assessed by using the SWOT analysis which represents the assessment of the strengths, weaknesses, opportunities and threats of the company.
- The fame and the brand values associated with the company is the key strength of it. There are many customers who will remain with the company only for the popularity of the company. Many customers ensured this fact while communicated and many of them said that when they have retained their purchasing capacity they will buy from the company.
- The pricing strategy of the company is also strong. Though the price becomes high, but the prices of the products are much less that any other competitors. So, this price can attract the customers who are now purchasing products from others and thus the company will get some new customers.
- The environment friendly environment policies are also a strength for the company. The furniture realm has the slogan of “Reduce, reuse, Recycle” as their environmental policy. It is using biodegradable and reusable environmentally sustainable materials. It also comprises effectively the re-forestation programs.
- Present alarming financial condition is a key threat to the company. It has now less financial reserve than any other time. It is getting fewer orders from the customers and thus the profit margin is also low. The price increases of the raw materials also keep the financial position of the company in an alarming stage.
- The reducing quality is also a weakness for it. Many customers indicate the lower quality of the furniture as the main reason of their less order. To maintain a marginal profit, the company is now purchasing lower quality raw materials and thus the product quality is decreased.
- The labor cut of the company is another weakness for it. Many labours leave the job for a wage cut. Labor make the manufacturing and delivery process successful. Thus, having less labor the manufacturing of the furniture are consuming more time and the delivery can not be able to complete timely.
- The price increase of furniture is a common scenario of almost all companies. But Furniture Realm has lower level of price increase than the competitors. Thus there is an opportunity created for it to attain the customers from the competitors.
- In the market, customers are now not willing to buy furniture. But customers can not remain that inactive for more time. So, there is an opportunity for it to get the customer response soon.
- The competition in the furniture industry is now higher than any other time. Many companies are taking various strategies to get customers. Thus this high competitive environment is a threat for it to survive in the competition.
- The new entrants are also a threat for it. As the market is oversaturated from before, these new entrants make the situation more complex. The new entrants are coming with more capital where the existing companies are having crisis in generating capital.
- The increasing price increase of the raw materials is another threat. The price of raw materials is increasing almost every day. Besides the demand of the raw materials are thus decreased for this price increase. Suppliers of the raw materials are trying to reserve the raw materials for the future when the demand is expected to be increased.
Based on the above discussion there are some recommendations for the furniture realm to overcome the present situation:
- It should ensure the quality of the product and the service first. To do so, it can contract the local distributors who do not charge as the established raw materials providers as they have no brand value.
- It should price its products according to the customer demand. For some periods of time this pricing will bring loss but this will help to attain some more customers and if the number of customers will increase the profit will generate in future.
- It should take proper steps to retain the present customers. For this it may offer discounts, price cuts or use any other possible techniques.
- It can take product development strategy that is offering new products to the existing market. As collecting and achieving new market is not only time consuming but also costly, it will be effective to design the new products according to the customer’s demand.
The present recessionary period affects the furniture industry so badly that many companies have already been shut down. If this crisis exists for a long term, the furniture industry can not be able to survive. This research report identifies the existing and future changes in the trends of the furniture market and also recommends possible strategies which can be helpful to recover from this situation. Specially, the changes in demand have an impact on the production and operation strategy and there might have some possibility that the whole system of the business can be changed in near future.
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1 Furniture Realm Ltd