Environmental Analysis: Army Air Force Exchange Service Week 3

Running head: ENVIRONMENTAL ANALYSIS

Environmental Analysis

MBA580

University of Phoenix

Environmental Analysis

Introduction

The Army Air Force Exchange Service (AAFES) has served military service members since 1895. Today AAFES’s customers demand more as competition from category killers and discounters lure them to their establishments. With 80% of customers having some college, a college degree, or beyond, AAFES customers are highly educated, (AAFES, 2008). They research products, and compare prices before entering an AAFES brick and mortar retail facility. Customer’s perception of value varies from best price, to best customer service, to best for the environment. A weak US economy is cutting into customer’s disposable income. AAFES must achieve long-term objectives to remain competitive in the upcoming years.

Economic: “Because consumption patterns are affected by the relative affluence of various market segments, each firm must consider economic trends in the segments that affect its industry,” (Pearce & Robinson, 2004, p. 79). Economic trends such as inflation cut into customer’s disposable income. The housing crisis, poor debt management, and an overall weak American economy are reasons for the declining value of the US Dollar. As represented in Figure 1, “overall inflation was projected to decline from its current elevated rate over the coming year, largely reflecting the assumption that energy and food prices would flatten out through 2010,” (Federal Reserve, 2008).

Figure 1

Core PCE Inflation Percent

2003 2004 2005 2006 2007 2008 2009 2010

Actual 1.4 2.2 2.2 2.3 2.1 - - -

Upper End of Range - - - - - 2.3 2.2 2.0

Upper End of Central Tendency - - - - - 2.2 2.0 1.9

Lower End of Central Tendency - - - - - 2.0 1.7 1.7

Lower End of Range - - - - - 1.9 1.7 1.4

The US economy has affected businesses and governments globally. “Countries that outsourced their monetary policy by pegging domestic currencies to the dollar are having second thoughts. Kuwait last year detached the dinar from the dollar, and Qatar government officials last week said they were considering doing the same,” (Gross, D., 2008, p. 48). European economists believe the dollar will remain weak and speculate the euro will replace the US dollar as the world’s reserve currency within the next decade (Schultz, S., 2008). Currently Asian super powers Japan and China have US dollar reserves that are declining in value, and are considering selling their greenbacks. “Countries such as Japan and China face a dilemma because if they sell some of their dollar assets they risk driving the value of the US currency and their own forex reserves even lower,” (Rook, D., 2008).

The declining dollar takes away from money that customers could be spending at AAFES retail facilities. Additionally inflation has driven up the cost of goods, which is past on to the consumer in the form of a price increase. Fortunately AAFES has the opportunity to counter the potential decline in sales. With retail facilities operating in Europe and Asia, AAFES has the opportunity to increase sales in an area where the outside economy is unreasonable to shop in. Military service members receive a cost of living allowance to offset the difference in cost of living off the economy. Despite having additional income the difference in price makes shopping AAFES more desirable as the customer’s first choice.

Social and Cultural: “The social factors that affect a firm involve the beliefs, values, attitudes, opinions, and lifestyles of persons in the firm’s external environment, as developed from cultural, ecological, demographic, religious, educational, and ethnic conditioning,” (Pearce & Robinson, 2004, p. 79). Social and cultural factors are perhaps the most critical when developing retail merchandise assortments. “As social attitudes change, so to does the demand for various types of clothing, books, leisure activities, and so on,” (Pearce & Robinson, 2004, p. 79).

AAFES customers consist of military service members whom are a mobile and global customer and are exposed to many global trends. According to the U.S Department of Defense demographic report, military active duty personnel stationed overseas consist of 7.4% stationed in Europe, and 6% in Asia, (AAFES, 2008). For this reason AAFES continues to practice market development by bringing products that customers have been exposed to in one country and can continue to buy when they move to another. For instance, a typical consumables section in AAFES retail stores world wide will feature approximately eight feet of retail space dedicated to European chocolates and cookies. AAFES also adjusts to the local market by procuring locally produced goods from vendors to compete with the area’s retailers. “The U.S. overseas presence in 2010 will closely resemble that of today. Manpower levels in all three theaters (Europe, Asia, and CONUS), as will combat zones,” (RAND, 2008). AAFES must continue to implement European and Asian goods into their product assortment as military presence overseas is not expected to decline.

“One of the most profound social changes in recent years has been the entry of large numbers of women into the labor market,” (Pearce & Robinson, 2004, p.80). This is of great concern amongst AAFES customers, particularly active duty customers. 28% of AAFES customers are females, while approximately 93% of military spouses are female (Kloeppel & Wight, 2008). “73 percent of all military children are under the age of 11,” (Hedcoth, R. 2004). The FY 2008 annual cost per child care subsidy is estimated to be $6,870. The FY 2009 per child cost estimate of $7,400 is 7.7 percent higher than FY 2008 (RIPEC, 2007). “Women are projected to comprise 47% of the total labor force in 2014,” (U.S. Department of State, 2005). Given these factors female military spouses