Future demographic change in the UK will include growth in the overall population and further increase in the population aged over 55. To what extent does demographic change in the UK represent more of an opportunity than a threat to UK businesses? Justify your answer with reference to organisations and / or industries that you know. (40 marks)
Demographic change can be defined as understanding how the population changes by investigating such demographic components e.g. gender, age, ethnicity, home ownership, mobility, disabilities, language knowledge, employment status and location. These elements and how they change constitute vital information about the population of a given location and its culture. The UK economy is constantly changing for various reasons such as improvement in medicine and increased globalisation leading to people living longer and the UK economy becoming more diverse culturally. Whether or not it provides an opportunity or a threat to a business will largely depend upon how the management of the business decides to attempt to change because of the change of the demographics. The largest change to the UK demographics would be the overall increase in the average age of the country, because of the innovation in medicine keeping people alive for longer and people not getting sick for long. This could provide many opportunities for a firm in the UK, either in sales or the management of the firm. A firm could change the demographics of its target audience to an older generation, in order to potentially increase sales. Research highlights the importance of Local Authorities and Local Enterprise Partnerships in the developing policy responses to the challenges and opportunities arising from demographic change and economic trends in their localities.
For example Doro Mobiles is an organisation that specialises in making mobile devices for the older generation, due to there being a large increase in mobile phones designed specifically for an older market, with many utilities that would be useful to the older generation, such as larger buttons and a “help me” text button. Many other organisations feel unsure to produce mobiles tailored for the elderly market in fear that it’s too much of a risk and profits may fall in the long term. However Doro have seen their profits rise by 11% since the end of 2013. On the other hand this does provide some threat to firms in the technological industry; with firms having to work harder to gain the attention of the main target market of teenagers and young adults. However, while the over average demographic of the UK is growing older this is also countered by the fact that the whole economy is growing in general. The overall population has increased from 55million to almost 70 million over the last 50 years, and the growth is exponentially growing because of the increased presence of globalisation and the free movement of labour across all EU countries. This means that while the average age of the population has increased substantially, the overall market has increased by near the same rate. This means that while the markets that are unpopular with the older generation, such as the technology industry, will have stayed about the same size; or maybe even grown a bit.
This does however mean organisations such as Sony stand a much better change at obtaining profits due to tailoring products at a younger generation who constantly have changes in taste, therefore requiring innovation to allow for their profits of $1.5 billion. Demographic change does therefore result in opportunities for organisations, for example the rise in ageing population has allowed for Doro Mobile to innovate products to suit their needs alongside Sony who have used the increases in population to encourage innovation and development to target products to the younger generation.
Due to an ageing population in the UK there are currently 10.3 million people aged 65 and over in the UK. This is an 80 per cent increase over six decades, from in 1951. Over the last 60 years there has been a substantial change in the age composition of older people. In 1951, those aged 65-74 represented 67 per cent, and those aged 85 and over made up just 4 per cent, of the 65 and over population. Today, the two age groups represent 51 per cent and 14 per cent respectively. This therefore means there are a large number of retired individuals that are highly skilled are no longer working in the sector, whereas fewer students as of 2015 are attending university and obtaining the skills required to produce the products required such as engines for cars and aeroplanes. A growing shortage of engineering skills threatens to hold back industry’s recovery and wreck efforts to rebalance the UK economy. Four out of five manufacturers are experiencing recruitment difficulties and two-thirds of those say this is because candidates lack technical skills. It warned that shortages threatened to stifle companies’ growth plans. Industry faces added competition because demand for engineering and maths graduates is rising in the financial services sector for the first time since the recession.
In recent years sourcing skilled staff has proved to be a great challenge for GBV Engineering even though GBV has invested time and money into apprentices, the trainees had not stayed with the business. With an aging workforce, GBV was unable to replace staffs who were retiring. To safeguard the company's future, the company needed a reliable operation and decided to invest in a fully automated production line. GBV, which already owned two loading robots which operate CNC machines, wanted to extend the company’s fleet to increase capacity, stabilise growth and strengthen their position among their competitors. The robots are used to load components onto the CNC machines; previously this process would have been done by an employee, as would random spot checks of the finished products. Now, every single finished item is checked robotically reducing the risk of human error. With an automated process if any faults are detected, production comes to a halt automatically which is highlighted so that errors can be amended remotely and production will start again. An automated process such as this, which is capable of running 24 hours a day seven days a week, cuts time by 60%, doubling production and therefore capacity for new contracts. The more efficient production is more cost effective, enabling GBV to charge a lower fee to their customers, making them more competitive globally while offering better quality stock.
However this does also pose a threat to GBV Engineering in the long term as the movement away from labour could potentially result in high capital expenditure and maintenance costs as an automated system can cost millions of pounds to design, fabricate, and install), a higher level of maintenance needed than with a manually operated machine, and a generally lower degree of flexibility in terms of the possible products as compared with a manual system. There can also be several unpredictable costs that may exceed the actual cost saved by the automation itself. Some of these costs could include research and development costs of automating a process, alongside the financial opportunity cost of obtaining automated machinery. Although an ageing population can provide opportunities for organisations such as efficient production and potentially higher quality products in the long term, threats can also arise such as increased financial costs in the short term.
Jaguar is an organisation that has benefitted greatly by targeting its products more at the ageing population, especially individuals whom are retired. Jaguar recently underwent new research and development to encourage the creation of new models and designs. Having identified a market segment, targeting takes place. This involves developing a marketing mix aimed at particular groups of individuals. The Jaguar S-Type is targeted at a younger average age of customer than the current XJ Series. There are three distinct target groups: professionals in the 30-45 age range (singles and couples), executive families in the 40-50 age range (2+ children) and third agers (couples aged 50+, childless or the children have left home). This has allowed for a profit of £924million as of 2014. A rebranding campaign was also launched with a new logo and a revamped brand image - in an attempt to modernize the brand and appeal to a younger demographic. By previously targeting an older market failed to give Jaguar the profits and reputation it needed to be a worldwide success. Through identifying the need to target products at a range of different market segments allowed for Jaguar to obtain an outstanding reputation alongside increased profits. Jaguars have even gone to produce television adverts in both the UK and of recent in the US to try and encourage the development of its brand, qualities and reputation. Is it therefore evident that Jaguar have taken their brand to the next level by obtaining a better understanding of demographics such as age, population increase, gender and lifestyle to encourage awareness and USP, leading to an increased profit margin.
I am therefore able to evaluate that demographic change within the UK can lead to both opportunities and threats to businesses. With a rapidly ageing population and migration trends changing the ethnic makeup of our cities and towns, UK shopping habits too are beginning to evolve and reflect these wider demographic changes. The changing demographic profile of the UK is a major influence on consumer purchasing power, shopping behaviour and shopping preferences. The age structure, ethnicity, household composition and demographic distribution of the UK population are all undergoing significant change and its implications are important for retailers to understand and anticipate. By 2030, the number aged 65 or older is projected to reach 15.5m, growing 43% on its level in 2012, compared to an expansion of only 13% in the population as a whole. While this group currently accounts for less than £1 in every £5 of total spending, this share might rise to £1 in every £4 within two decades, which therefore means that the rising influence of this group could see sales shift towards the categories and methods of shopping that they favour. Health, DIY and home maintenance retailers, which attract a large share of elderly households’ budgets, should benefit from this change, whereas retailers selling clothing, beer and soft drinks, which are geared towards a more youthful market, could lose out. Furthermore retailers must rethink store design; marketing and advertising campaigns to attract the grey pound and above all understand these are older consumers have different tastes and needs.
Organisations can benefit from demographic changes through tailoring products, advertising, and ensuring they meet the needs of the population. However if organisations fail to understand the changes in demographics, competitors could become leaders of the market place which in turn could result in falling profit margins for a range of businesses. Organisations must therefore have a strategy in place to cover changes within the external environment to ensure they still can tailor their operations to meet the needs of the environment.