Economic factors affecting pricing Instructor Date Before pricing your products/service, it is vital to understand that prices can have double-edged impact on your products in the sense that it can make or break the business (Martins, 2010). For this reason, every businessperson must devise his or her prices with caution in order to gain effectively from moving sales but at the same time avoid negativities associated with bad pricing…
Using prices may be because every company wants to gain and retain competitive edge at a price level. Pricing cannot be done in isolation considering that there are number of economic issues in the business environment that firms must take into consideration before setting up prices in order to remain relevant (Devan, 2011). Key economic issues that may affect a business’s pricing strategy include but not limited to level of competition, recession, demand, cost of services, elasticity and government policy. The level of competition will definitely affect the organization’s preferred pricing strategy (Martins, 2010). The tax advisory firm is already facing competition from non-CPA market competitors and do-it-yourself tax-preparation software packages. Provided you are not a market a leader in the industry, competitive pricing will always have a great impact on your service prices. This is because market leaders are renowned for establishing standard prices against which comparisons will be made on other services price offering. It is the wish of every company to sell its services with a high margin but unfortunately, this is not possible in a highly competitive market as existing competitors are likely to offer identical services at considerably lower price. When trying to set prices as in our case where the tax advisory firm is already facing competition, it is not worthwhile to avoid competitors. Devan (2011) asserts that this is because an intense competition will always increase flexibility of company price offering. It is advisable, that the decision to compete with lower price offering should cautious, because competitors often respond with lower prices if they perceive negative impact of your low prices on market share. The level of market demand is another important issue that can affect pricing strategy of products/service (Devan, 2011). Demand in this case refers to the quantity of product that the client is willing and ready to pay for. In case demand exceeds available supply, in our case being service offering then there tend to be an increased rush for the few available service providers and this is likely to inflate product prices. According to Martins (2010), business enjoys when demand is very high in the industry, as this will not significantly influence service prices unlike in situation where demand is low with a high number of suppliers in the market. Recession will often have an impact on the pricing strategy of an organization. During recession, companies tend to set their prices low owing to the consumers low spending power. Clients often demand for lower prices during recession than in normal economic and this force business to cut down their prices to be attractive to clients and avoid closing down owing to lack of business. Elasticity is a vital consideration when designing an organizations pricing. A firm must consider the reaction of clients to its products in case of changes in prices. A high elastic product/service is that which a slight increase in price will discourage consumers and thus low demand (Devan, 2011). Inelastic products are those, whose demand is not affected by the changes in prices whether upwards or downward. A company needs to consider the type of service offering t ...
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