Tag Archives: research

Make sure the price is right with market research

Posted on by

The promise of the new year lies ahead. One way to help ensure it’s a profitable one is to re-evaluate your company’s pricing strategy. You need to devise an approach that considers more than just what it cost you to produce a product or deliver a service; it also must factor in what customers want and value — and how much money they’re willing to spend. Then you need to evaluate how competitors price and position their offerings.

Doing your homework

Optimal pricing decisions don’t occur in a vacuum; they require market research. Examples of economical ways smaller businesses can research their customers and competitors include:

  • Conducting informal focus groups with top customers,
  • Sending online surveys to prospective, existing and defecting customers,
  • Monitoring social media reviews, and
  • Sending free trials in exchange for customer feedback.

It’s also smart to investigate your competitors’ pricing strategies using ethical means. For example, the owner of a restaurant might eat a meal at each of her local competitors to evaluate the menu, decor and service. Or a manufacturer might visit competitors’ websites and purchase comparable products to evaluate quality, timeliness and customer service.

Charging a premium 

Remember, low-cost pricing isn’t the only way to compete — in fact, it can be disastrous for small players in an industry dominated by large conglomerates. Your business can charge higher prices than competitors do if customers think your products and services offer enhanced value.

Suppose you survey customers and discover that they associate your brand with high quality and superior features. If your target market is more image conscious than budget conscious, you can set a premium price to differentiate your offerings. You’ll probably sell fewer units than your low-cost competitors but earn a higher margin on each unit sold. Premium prices also work for novel or exclusive products that are currently available from few competitors — or, if customers are drawn to the reputation, unique skills or charisma that specific owners or employees possess.

Going in low

Sometimes setting a low price, at least temporarily, does make sense. It can drive competitors out of the market and build your market share — or help you survive adverse market conditions. Being a low-cost leader enables your business to capture market share and possibly lower costs through economies of scale. But you’ll earn a lower margin on each unit sold.

Another approach is to discount some loss leader products to draw in buyers and establish brand loyalty in the hope that customers will subsequently buy complementary products and services at higher margins. You also may decide to offer discounts when seasonal demand is low or when you want to get rid of less popular models to lower inventory carrying costs.

Evolving over time

Do your prices really reflect customer demand and market conditions? Pricing shouldn’t be static — it should evolve with your business and its industry. Whether you’re pricing a new product or service for the first time or reviewing your existing pricing strategy, we can help you analyze the pertinent factors and make an optimal decision. Call us today at 205-345-9898.

© 2018 Covenant CPA

Research credit available to some businesses for the first time

Posted on by

The Tax Cuts and Jobs Act (TCJA) didn’t change the federal tax credit for “increasing research activities,” but several TCJA provisions have an indirect impact on the credit. As a result, the research credit may be available to some businesses for the first time.

AMT reform

Previously, corporations subject to alternative minimum tax (AMT) couldn’t offset the research credit against their AMT liability, which erased the benefits of the credit (although they could carry unused research credits forward for up to 20 years and use them in non-AMT years). By eliminating corporate AMT for tax years beginning after 2017, the TCJA removed this obstacle.

Now that the corporate AMT is gone, unused research credits from prior tax years can be offset against a corporation’s regular tax liability and may even generate a refund (subject to certain restrictions). So it’s a good idea for corporations to review their research activities in recent years and amend prior returns if necessary to ensure they claim all the research credits to which they’re entitled.

The TCJA didn’t eliminate individual AMT, but it did increase individuals’ exemption amounts and exemption phaseout thresholds. As a result, fewer owners of sole proprietorships and pass-through businesses are subject to AMT, allowing more of them to enjoy the benefits of the research credit, too.

More to consider

By reducing corporate and individual tax rates, the TCJA also will increase research credits for many businesses. Why? Because the tax code, to prevent double tax benefits, requires businesses to reduce their deductible research expenses by the amount of the credit.

To avoid this result (which increases taxable income), businesses can elect to reduce the credit by an amount calculated at the highest corporate rate that eliminates the double benefit. Because the highest corporate rate has been reduced from 35% to 21%, this amount is lower and, therefore, the research credit is higher.

Keep in mind that the TCJA didn’t affect certain research credit benefits for smaller businesses. Pass-through businesses can still claim research credits against AMT if their average gross receipts are $50 million or less. And qualifying start-ups without taxable income can still claim research credits against up to $250,000 in payroll taxes.

Do your research

If your company engages in qualified research activities, now’s a good time to revisit the credit to be sure you’re taking full advantage of its benefits. Call us today at 205-345-9898.

© 2018 Covenant CPA

3 ways to protect yourself from fraud when shopping online

Posted on by

Online shopping enables consumers to buy almost anything from the convenience of their own homes. But comfortable surroundings can lull online shoppers into a false sense of security. You wouldn’t leave your wallet unattended in a busy shopping mall or enter a sketchy-looking shop, yet you may be taking similar risks on the Internet.

One of the biggest risks is shopping on fraudulent sites or making purchases from crooked marketplace sellers who have no intention of shipping the goods you’ve paid for. Here are three suggestions for protecting yourself:

  1. Use feedback features. When shopping in online marketplaces such as eBay or Amazon, pay close attention to ratings and comments provided by previous customers about individual sellers. Bear in mind, however, that some online review platforms allow sellers to request the removal of negative reviews. And while reputable marketplaces and review sites do their best to block fake reviews, it’s possible for sellers to boost their profile by paying “customers” to post five-star ratings and raves.
  2. Perform basic research. Before making a purchase from an unfamiliar retail site, plug the site’s name into a major search engine. Because negative information may not appear at the top of search results, look beyond the first or second page. In some extreme circumstances, disgruntled customers set up their own sites to air grievances about an online retailer or you may find news of legal action. Also be wary if you find almost no information about a retailer. Some scam artists frequently change the names and addresses of their sites to stay one step ahead of the law.
  3. Always pay with a credit card. Credit card companies generally allow their customers to dispute fraudulent charges and get their money back if they don’t receive the goods they purchased. So beware of online sellers who ask you to pay by check, ACH or wire to avoid credit card processing fees. Online marketplace scammers sometimes ask customers to skip the site’s payment system and pay them directly. This is dangerous because it places a transaction beyond the reach of the marketplace’s fraud detection and prevention systems.

Most online merchants deliver on their customer commitments. However, a small percentage take advantage of the Web’s anonymity to commit fraud. Be sure to check out any site or seller you intend to do business with and, just as important, listen to your gut. If something makes you uneasy, don’t proceed with the transaction. Contact us for more information at 205-345-9898.

© 2018 Covenant CPA