Current Market Conditions Competitive Analysis

Firearm Accessory Identification Software

Factors that affect demand, supply, and equilibrium prices in the market in which the competitor organization operates

There are numerous factors that will ultimately affect both the supply and demand for firearm software. The first, and often most contentions factor is that of regulation. Over the recent events of school shootings, terrorist attracts, and the controversial "stand your ground law," regulation will have a profound impact of firearm adoption and usage. This will directly impact the use of accompanying firearm software. Regulation, or the prospects of regulation, helps bolster firearm demand as consumer flock to purchase firearms before regulation is implemented. This concept has occurred on numerous instances directly after a publicized school shooting or attack. Gun ownership tends to increase dramatically as consumer fear regulation. This bodes well for firearm software manufacturers over the short-term as they can raise prices on the belief of lack of supply in the future. However, on a long-term basis regulation can dampen demand and reduce supply of firearms. This is particularly profound for manufacturers who often the lowest rung on the supply chain. Regulation could cripple manufacturers, those lowering availability and prices for firearms (Lee, 1981).

Another factor affecting the market overall is that of commodity prices and their affect on overall gun pricing. Commodity prices are particularly volatile due the accommodative interest rate policy the world is currently in. As such, commodity prices tend to fluctuate as investors speculate on future price movements. This impacts firearm manufacturers as their costs to create firearms could rise dramatically. Commodities such as steel, iron, nickel, plastic, and other materials used to manufacturer firearms could all rise rather dramatically. Steel and iron in particular have seemed dramatic increases in price as demand from China has created lower supply. As such, firearm manufacturers must now pay more for access to the same amount of materials. These cost will ultimately be bourn by the consumer in the form of higher retail prices. In some instances, the higher prices may discourage consumers from purchasing firearms, as the cost of doing so is simply too high (Kelly, 2004).

Another very important factor effecting supply, demand, and pricing is that of the macroeconomic environment. Currently, the Federal Reserve has initiated very low and accommodative interest's rates across America. This interest rate policy could benefit Pachmayr dramatically in regards to supply and demand. For one, the company, through low interest rates, can take on larger amounts of debt to finance innovative products. The low interest rate environment makes borrowing money essentially free, on a real term basis (with inflation added). As such, companies have incentive to finance innovation and new product development through debt. Furthermore, low interest rates can allow Pachmayr to acquire rival firms in the industry, thus consolidating product offerings. This could affect pricing as fewer competitors are in the market to compete based solely on price. The consumer is also feeling more confident as unemployment has declined and consumer confidence is increasing. This bodes well for Pachmayr as the demand for its products correlates to consumer discretionary income and spending habits. If consumers are feeling confident, they are more likely to spend on firearms and other non-essential items such as software. Conversely Pachmayr can also charge more for value added items that might make the firearm experience more pleasurable for the consumer.

Any issues or opportunities your organization or industry faces that affect its competitiveness and long-term profitability with regards to your product

Competitiveness is strong within the industry. This is particularly true for software which can be replicated or enhanced relatively quickly. As such, an initial advantage in regards to product offerings can quickly evaporate due to intense competition. Over the long-term, as firearms become more commoditized, profitability could potentially decline over time. To alleviate this concern, innovation must constantly occur in order for manufacturers to require premium pricing. Software in particular is troublesome as it can quickly become antiquated. Constant innovation is needed to further drive up margins which is an indicator of profitability. Regulation too, can hinder the long-term profitability of the industry through regulation of pricing, product, and distribution.

Factors affecting variable costs and fixed costs

To begin the operations strategy will at first rely on a heavy fixed cost structure. The operations of the business will therefore be fixed irrespective of customer traffic or membership. Aspects such as software equipment, buildings, warehouses, test facilities and so forth all require extensive fixed cost investments to begin with. The operations strategy will rely on first securing financing for this fixed cost investments. Today's interest rate environment is relatively low. As such, I believe that interest expense for the business will be relatively low as compared to historical averages.