Last Updated 18 Jun 2020

Economical environment

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Interest rates and exchange rates have an impact on consumer spending and can affect the profitability of the firm. There are many economic indicators which determine the environment of the business. This include;- effects of affluence, depression, inflation, shortages of product in the market, effects of research expenditure, research costs, buying power index, consumer ability and willingness, price elasticity, and cost of distribution affects the business.

Other economical factors that affects business environment include;- the long term focused by the government, macro economic projections of the government and the financial stability of the state. The economic environment has many valuables as stated above, this valuable are responsible for the success of any business in the world today. Be it other environmental factors such as technological government and social.

Economical environment is of great importance. This environment is influenced by resources which are available in the market. Resources such as energy will have inherent economic forces that affect the business. If there is recession, depression and inflation in the market, the market will be affected. Inflation and recession affects the demand of goods and services. While shortages of goods in the market will also have an influence in the prices of goods.

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The consumer of the product in question will have to work extra harder in order to consume the product since the price would have gone up. Inflation changes the consuming pattern of business men and other partners. An excess demand of goods and services over supply will result into demand pull inflation thus rising up the prices; this will lower consumption and decrease the profits of the organization. Price increase can also be a result of increase in the costs of production which leads to cost pull inflation.

Inflation has a wide range of effects such as affecting consumptions, reducing the purchasing power of consumers, may end up creating monopolies and many other factors (Rusheed H. S. ,2006),. Before a business manager enters into economical environment where business is carried he should be able to analyze possible solutions that are available for reducing inflationary effect, and this may include;- a policy of product simplification, that is, a limitation of the variety of sizes, forms, qualities and other characteristics of any one product.

The consumer’s choice of a particular variety is now somewhat limited, but the lower unit costs and thus the maintaining of the old price level suits the new need of the consumer, namely the protection of his buying power. A policy of product simplification does not imply a reduction of quality and the enterprise should emphasize the functional qualities and the durability of the product or service. The elimination of unnecessary services to reduce costs.

A switch from national brands to no-name brands, especially by middlemen. New products should include real improvements and should not merely be an imitation of competitor’s products. The marketer should use his marketing communications to explain these steps to the consumer and to bring to his attention the fact that the steps are not only for the enterprise’s gain, but are also to the advantage of the consumer. A general increase in marketing productivity, whether the enterprise is a manufacturer or a middleman.

An increase in marketing productivity can be obtained by; an increase in sales or net profit which is proportionally larger than the increase in marketing costs; an increase in sales or net profit where marketing costs are kept constant; constant sales with a decrease in marketing costs; and corresponding decrease in marketing costs. Marketing research is now more than ever necessary to provide marketing management with guidelines.

Economic environment has been one of the factors that have affected businesses globally because of the mentioned variable changes above. These variables affect prices of factors of production of finished goods and other related factors. The consumer is affected by this changes and its upon the marketing manager of the company in question to analyze the environment so that he can determine the price they will charge there customers in order for them to succeed.

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