The importance of external influences
External influences are factors outside a business that affect it but that it cannot control — the technology, legislation and economic conditions covered in 1.5.2, 1.5.3 and 1.5.4.
This final sub-topic pulls the three together and asks one question about them: given that a business cannot control them, what can it do?
Why they matter is the starting point. They affect costs, sales, profit and sometimes survival; they change without warning and without the business having any say; and they affect competitors too — so the business that responds best gains an advantage over those that respond slowly or not at all.
That last point is the key to the whole topic. External change is not simply a threat. The same change that damages a business slow to react creates an opportunity for one that moves first.
- External influences
- factors outside a business that affect it but that it cannot control, such as technology, legislation and economic conditions
Possible responses to change
Across all three, the responses fall into a few recognisable kinds — and naming the kind makes an answer sharper than listing examples:
• Change the marketing mix — adjust price, product, promotion or place to suit the new conditions. • Change costs — cut spending, find cheaper suppliers, or reduce staff hours. • Change the product — add features, launch a budget range, or replace something becoming obsolete. • Change where or how the business operates — move online, change supplier country, relocate. • Do nothing, deliberately — if the change is small or temporary, reacting may cost more than it saves.
That last one is worth remembering. Not every external change requires a response, and an answer that recognises when to wait shows better judgement than one that always recommends action.
Worked example
A recession begins, and a mid-priced restaurant sees bookings fall. Recommend how it should respond.
- Identify the cause: falling consumer income means people cut back on non-essentials, and eating out is one of the first to go.
- Consider a price response: a set menu or midweek offer keeps customers coming at a lower price rather than losing them altogether.
- Consider a cost response: reduce staff hours on quiet nights and cut menu size to lower food waste, protecting cash flow.
- Consider a product response: a cheaper range alongside the existing menu, so customers trade down within the restaurant rather than to a rival.
- Weigh the risk and commit, since these questions want a recommendation.
Answer: It should introduce a lower-priced set menu and reduce staff hours on quiet nights — keeping customers who would otherwise stop coming, while protecting cash flow. The risk is that discounting devalues the restaurant and is hard to reverse, so the offer should be limited to quieter times rather than applied across the whole menu.
Common mistake
External influences cannot be controlled, only responded to. An answer saying a business should "stop inflation" or "change the law" misses the point — the question is always what it can do within conditions it did not choose.
Before you practise
- External influences are outside the business's control: technology, legislation and the economic climate.
- They affect costs, sales, profit and sometimes survival, and they change without warning.
- They affect competitors too, so responding well is a source of competitive advantage.
- Responses to technology: adopt e-commerce and social media, automate, train staff, update the product.
- Responses to legislation: train staff, change practices, budget for the cost, and use compliance in marketing.
- Responses to the economic climate: cut costs, add a budget range, delay expansion, change suppliers, seek exports.
- Sometimes the right response is to do nothing, if the change is small or temporary.
- You cannot control an external influence — only respond to it.