Question

To help understand the factors impacting a sales budget, choose three businesses.

Required: 1. Identify at least three external factors that must be considered when setting the sales budget. (Note: There is a difference between internal and external factors that impact the sales budget.) 2. What factors might explain any differences identified in the prices of the businesses you visited?

Answer 1

Following are the external factors to be considered while setting the sales budget -

1. Government policies:

The businesses which operate in a government regulated environment will be hugely impacted by any change in governments industrial and taxation policies. For example, the government may increase the taxes for a particular industry in which the company operates, thereby negatively impacting the profitability of the company, It is also possible that government may make stricter rules for entry of any new player in the industry, thereby positively impacting the current players .

2. Competition

The other companies operating in the same market with similar products pose a threat to the company's sales targets and profitability. Depending on how the company perceives the competitor products acceptability and performance in the market, the sales budgets may need to be modified accordingly. For example the competitor may have launched a new product which may have received good response from the customers. In such as case, the company may consider the trend and re - adjust the sales figures in the budgets.

3. Changes in customer preferences

The company may also have to consider another external factor in the form of what changes have happened in customer behavior and preference. For example,the research may show that the target customers may have shifted their preference to a particular type of product which may not be in the current product portfolio of the company. The company may accordingly have to change their sales strategy depending on their ability to introduce a similar product and the time that will be required to do so.

Factors for pricing differences between companies -

1. Product uniqueness-

Certain product may not be easily available in the market as the number of companies producing the same may be very limited. In such cases, it is likely that the companies which are currently producing the product may price it on a higher side considering the demand supply mismatch.

2. Product quality and brand recall

Some products may enjoy huge consumer following due to the tried and tested product quality. They may be in the market for a long time with consistent quality and continuous improvement. It is likely that such companies may charge a premium for such products, even though there might be other players offering similar products in the market.

3. Competition

In markets where there is heavy competition with many players offering similar products and services, the consumer may decide on the basis of lowest pricing. In such cases, pricing may determine the survival of the company in the market, therefore the company may need to constantly review the pricing of the product and bring it in line with competition so as to maintain or increase the market share of the product.