Question

6) When setting prices, the company must consider its external environment. Describe four aspects of the external environment and how they affect businesses.

Answer 1

External environment is outside the organization boundary. A company sets plan and strategy based on this environment, since it has no influence to change such environment.

Four aspects are as below:

#) Political: this environment makes a platform a business to run. Prices would be stable if the government is stable; otherwise, this could be fluctuated if the economy doesn’t have political stability.

#) Economical: the country having growth prospect is economically sound. People can afford high price. Business strategy must be also growth oriented. Prices would be set accordingly.

#) Legal: if legal formalities in a place are high, prices would be high, since the expenses have to be covered by the business. In practical, the business strategy would be to reduce cost in other fields (like in production, supplying, etc.)

#) Input factors: if input costs for making production are high, prices would be high. Sometimes, a business becomes hopeless to prevent it. Businesses should always search for alternatives in order to cope up.