Economic Factors Essay Example
The economic environment of any business refers to the factors that affect the investment value of the said business. In this case, the introduction of the sound thermostat business which fits into the industry that targets the smaller population interested in the sustainability of energy, may face certain challenges in the economy. This is such as, attracting the middle income employment consumers, identifying the most appropriate pricing for the new product and other current affairs such as inflation rates affecting the country’s economy at the time. This is to say these economic factors need to be taken into consideration when analyzing the sustainability of this company to ensure that a strong foundation is established.
Figure 1: Showing the Central Business Relationships. Source: (Ervin and David 24)
The relationship between a new business and a possible consumer is important in ensuring that the demand chain is established to provide adequate support for the business operations. To satisfy this aim therefore, creating stability and confidence of the consumers in the business is dependent on the ability to satisfy the needs and expectations (Pîndiche, Elena, and Ionita 33). In specific businesses such as thermostats and other energy saving initiatives, it is challenging because the target market is mainly the middle income population who are both homeowners and parents. Therefore, having people that are employed well enough shows that they will be the target consumers of products due to the ability to pay for them. On the other hand, when unemployment is high, the spending becomes low and because of this, the business suffers challenges. Generally therefore, the marketing department has to find means that reach specifically to these individuals and if the employment of most people is not sufficient, the target market is lost.
Establishing the right pricing of the new product
The sound thermostat intended for business in this case is a new product in the market. This therefore means that evaluations have to be carried out in comparison with other thermostats such as HVAC automation thermostats to identify where they fit in. In addition to this, the element of competitive pricing might be such that companies have to go out of their way to carry out research to identify the best way to attract loyal customers that use products of a similar nature. Lastly, regulations and governmental policies concerning the economic structure also limit the decision on pricing which could probably cause frustration to a new business.
Having a good interest charged on a loan from an individual or a company, is another important economic milestone. This is because, in many small businesses or startups such as this one, loans are acquired from banks or other institutions financial in nature to help with the financing. However, higher interest loans result in higher business expenses for the new company as it does not yet have enough market shares to sustain such expenditure. This means that high interest loans are bad as they slow down the intended progress of businesses hence another major challenge.
Lastly, the rise and fall of prices in the economy and the international exchange rates are other major factors curtailing the progress of business. This is because inflation causes an increase in business expenses such as rent, cost of materials and overall production process. For a new business, this means that the rising costs might force the acquisition of more loans and investment for capital once again frustrating the intended growth of this business.
Generally, every business is affected by the economic factors because it is under these factors that they thrive. The demand for goods and services is dependent on the customer’s intention to purchase goods, the supply relies on the availability of manpower hence employment and every pricing is regulated based on the inflation rates. As for the sound thermostat business therefore, quality research that helps with the establishing of the pricing, finding out about the inflation and interest rates and the target consumers’ location, will help this business build a solid foundation.
Aifheli, Ratshili. The impact of performance management on employee morale in Western Cape Provincial head office of Department of local government & housing. Diss. 2012.
Ervin Saul, David Jake, «Economic and institutional factors affecting business environmental management.» Ecological Economics. Forthcoming (2010).
Pîndiche, Elena, and Roxana Ionita. «The Influence of Micro and Macro Environment Components on Trade Companies in Romania.» Journal of Knowledge Management, Economics and Information Technology 3.6 (2013).
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