Social and cultural environment has a profound effect on the policies and strategies of a business. In this article, we will take a look at the impact socio-cultural factors have on a business.
Australia’s largest airline Qantas, got into an alliance with Dubai-based airline Emirates in March this year. To respect the sensibilities of its alliance partner, and the Muslim population, pork and alcohol was banned from all flights to/from Europe.
The aim of a business is to make optimum use of its available resources to generate revenue, and maximize its profits. Whether or not a business is able to make optimum use of its available resources depends upon numerous internal and external factors. One of such notable factors that plays a decisive role in the functioning of an organization is the socio-cultural environment of the region in which the organization is operating. Socio-cultural factors such as social attitudes, belief systems, education, law, politics, etc., have a bearing on the prospects of a business. If a business overlooks, or fails to identify the effects of socio-cultural factors, it runs the risk of alienating itself with its immediate environment. In this BusinessZeal article, we will try to understand the impact of social and cultural factors on a business, with the help of a few examples.
Religion and Custom
Religion and custom are two of the most important factors impacting a business. Every organization has to adapt itself to the prevalent customs and traditions in a region. A uniform business policy cannot be implemented throughout the world, as allowances need to be made for the religious sensibilities of the local population. Let us understand the concept in detail with the help of an example.
McDonald’s, one of the largest restaurant chains in the world, started its India operations in 1996. Although McDonald’s had been in business for roughly 40 years, during which it had expanded to different parts of the world, its foray into the Indian sector was met with skepticism. The prime reason why many people didn’t give McDonald’s a chance in India was because most of the McDonald’s restaurants around the world served beef in their burgers. India, with its Hindu majority population, considers cow as sacred, and vegetarianism is taken so seriously that many vegetarians avoid sitting with someone having a non-vegetarian meal. The marketing heads at McDonald’s were also aware of the vast diversity in Indian food habits, and they had to come up with a menu that would appeal to such a large number of people. To succeed in a country where frugality was an inherent characteristic, McDonald’s also had to work towards keeping the price of its products under check, without compromising on the hygiene and quality factors. To succeed in such a behemoth and diverse market, McDonald’s had to pay attention to all these socio-cultural factors.
The first shift in policy for McDonald’s in India was replacing the beef patty of Big Mac, its flagship burger in over 100 countries around the world, with something that was permissible under Hinduism. The alternatives were chicken, lamb, and fish, and by offering these in the burgers, McDonald’s was able to appeal to the non-vegetarian section of the Indian population. However, to truly succeed in India, the vast majority of vegetarians had to be catered as well, and this is what led to the introduction of the McAloo Tikki™ – a burger in which potato was used as the patty, instead of meat. Another initiative to adapt itself to the religious sensibilities of Indians involved demarcating the McDonald’s kitchen into non-veg cooking and veg cooking areas. The veg department crew was made to wear green aprons as a symbolic gesture to appeal to the vegetarian customers. Also, in McDonald’s restaurants around the world, beef flavoring was used to prepare french fries, but this practice was completely shunned in India. Over a period of time, McDonald’s added more vegetarian items to its menu, making it appeal to a cross-section of Indian consumers.
What is being thought of as a first of its kind in the world, McDonald’s is planning to open ‘vegetarian-only’ outlets at two of the most revered sites in India. A restaurant, which is known all over the world for its beef offerings, has shown a high level of flexibility to be in sync with the socio-cultural environment of a country. By adapting itself to the prevalent socio-cultural environment, McDonald’s has been able to penetrate into the Indian market, and establish itself as one of the most popular eateries in the country.
Reference: Online Journal of International Case Analysis (OJICA)
Change in Preferences
One of the most important socio-cultural trends which has an impact on a business is the constantly changing preferences of customers. A business may build a brand name for itself and model its core strategies in a certain manner, but if it fails to recognize and adapt to the changing preferences of the customers, it is doomed to fail. The example given below will analyze this in detail.
Nokia was one of the biggest mobile handset manufacturers until recently. In 2007, Apple launched the iPhone, which completely changed the rules in the smartphone market. iPhone was a bold statement by Apple on what a phone could achieve. The launch of iPhone, and its subsequent critical and commercial acclaim, was a clear indicator to all handset manufacturers that customers expected quality experience while browsing the internet, listening to songs, watching videos, etc. iPhone’s unprecedented sales, despite the fact that it came with a higher contract cost, was a testimony to the fact that the customers were appreciative of innovation and technology, and didn’t mind paying extra to get the best thing in the market. The hysteria surrounding the iPhone made Samsung sit up and take notice. Samsung had a relatively little market share in the handset category although it was a big name, with a huge brand presence in the home-appliances sector. Acting quickly and prudently, Samsung forayed into Android, a Google operating system, which was at a nascent stage at that time. To give itself a shot in the arm, it also embraced Windows operating system, along with building its indigenous software Bada. Nokia, which was still the market leader, remained stubborn and failed to cater to the expectations of the customers. It continued to manufacture phones that were of the highest quality as far as hardware is concerned, but the sluggish and out-of-date Symbian software meant that it had a few takers. Although Nokia did toe the line in 2011, by ditching Symbian and embracing Windows operating system, it was too late as the damage had already been done. The company lost its position as the leader of handset manufacturers, its sales and profits fell drastically, its bonds were downgraded to ‘junk status’ by credit rating agencies, 10,000 of its employees were axed, and there were concerns about the company going bankrupt. Samsung, the minnow when Nokia was the shark, is now the largest handset manufacturer in the world, and in the process, has outdone Apple’s iPhone, which many consider to be the innovation on which most modern smartphones are modeled.
Change in Demographics
Demographics is another socio-cultural factor that has an impact on the fortunes of a business. The number of people living in a region, their ethnicity, age, gender, race, sex, etc., are important factors to consider for any business organization. An understanding of the demographics of the customer base can provide a business with invaluable pointers towards launching new products, pricing, marketing strategies, etc. The following example will illustrate how demographics lead to a change in strategy.
Harley Davidson, the iconic US-based motorcycle manufacturer, has established itself as one of the premier bike makers in the world. Most of the customer base of Harley Davidson comprises Baby Boomers, over the age of 35. After the World War II ended, America emerged as one of the most powerful nations of the world. The period after the war was filled with optimism and exhilaration. The Baby Boomer generation grew up in a period marked with added emphasis on individuality and adventure. Motorcycling had emerged as an alternate lifestyle, with most motorcyclists preferring the heavy, cruiser bikes of Harley Davidson. The increase in sales, and the fact that it was the favorite bike of numerous motorcycle clubs, helped Harley Davidson in achieving a cult status. It came to be associated with muscular white men with long beards, who were in their mid-thirties. However, over the years, changing demographics introduced new people to Harley Davidson. The median age of its customer base, which was 35 in 1987, jumped to 47 in 2005. In 2012, more Harley Davidson motorcycles were sold to people in the age-group 18-34, than to the traditional customer base of 35+ white men. The people in the age group 18-34 comprised women and African-Americans. This change in demographics created an opportunity for Harley Davidson to manufacture bikes that appeal to its new customers, without alienating its loyal customer base of Baby Boomers. Part of its strategy to target audience was the launch of SuperLow, an affordable bike which has the lowest seat in the whole Harley line-up. The bike was strategically priced at $8000, so that youngsters and women find it affordable to buy. So, from being a brand manufacturing motorcycles for burly, tattooed white men, Harley Davidson today, is leaving no stone unturned, to reach out to youngsters and women.
Socio-cultural factors play a major role in the marketing strategy of a business. In fact, the whole idea of marketing is to connect with the existing customers, and to reach out to potential customers. The way a society is composed, and the manner in which it views itself culturally, plays an important role in the development of a robust marketing strategy. The marketing strategies vary from one country to another, and the factors that influence the strategy are literacy levels of the population, its core beliefs, its sensitivities, willingness to change, etc. In the following example, we will take a look at how Nestlé had to change its marketing policy to prevent itself from being in the center of a controversy.
Nestlé, one of the largest food-processing brands in the world, was involved in a controversy in the 1970s, when it was accused of causing deaths and malnutrition in infants in sub-Saharan Africa. The center of the controversy was Nestlé’s breastfeeding substitute – a baby milk powder. The substitute was marketed aggressively all around the world, but in several African countries, where literacy levels were low, people failed to realize that the product was aimed to act as a substitute for those children, whose mothers were unable to breastfeed them. Due to the fallacy that Nestlé’s baby powder was as good as mother’s milk, many women in Africa stopped breastfeeding their children altogether. Also, due to the poor living standards and unhygienic conditions, the baby milk substitute was not being prepared in the right way. The milk powder which was scheduled to last for 3 days, was being stretched to over a week. The water which was used in preparing the substitute was highly contaminated, and children frequently fell sick after consuming the substitute. All this meant a lot of negativity for Nestlé, not only in Africa, but also in the rest of the world. As a result of the controversy, Nestlé reviewed its marketing strategy in developing countries, and laid more emphasis on providing adequate informational and educational material with their baby milk substitute products to raise awareness among the people. Nestlé also cut down on the mass media advertising of its baby milk substitute, and changed its marketing strategy completely, so that it does not, inadvertently, make women in developing countries shun breastfeeding altogether.
This was some information on the impact of socio-cultural environment on businesses. Globalization has brought people from different corners of the world together, and today, companies are targeting new markets to increase their sales and revenue. Therefore, it becomes pertinent that business houses understand the impact of socio-cultural factors on a company, and take effective steps to work in accordance with it.