Accounting Services Marketing - Essay Example

Running header: Service Marketing Student’s name: Instructor’s name: Subject code: Date of submission: Accounting services marketing Introduction Having worked in various positions in the accounting service industry for the last eight years, I have acquired a wealth of experience which is sufficient for me to start an accounting services firm. I have noted that most firms in the industry are only offering high end services to their clients while ignoring the lower end market services such as book keeping and tax compliance. They cite low demand and fewer returns as the reasons for failure to offer such services. However, with the increasing regulations and government’s increased emphasis on tax compliance as well as increased tax requirements, the demand for such lower end services will be in the increase. As such, there is a lucrative opportunity for me to start a firm offering the lower end services to my clients. The proposed name of the firm is Prince House and associates and will mainly serve the small businesses segment of the market. This paper is a detailed market plan for the firm and the services it is intended to offer. Industry description The Australian accounting services industry is a significant one and had revenue of $15.3 billion in 2012 and is expected to increase by 5.6% annually to $18.9 billion in 2015-16. The industry is composed of firms certified to audit accounting records of private and public organisations while attesting their compliance with professional standards (Miriam, 2011). The firms provide a variety of accounting services which range from auditing of accounting records, book keeping and preparation of financial statements, designing of accounting systems, budget and financing advice among others. However, it is worth noting that most of these firms nowadays prefer to provide auditing, superannuation, financial planning and ICT services while book keeping and tax compliance is largely ignored (Joseph, 2007). Why an opportunity for business exists As stated above, most firms ignore book keeping and tax compliance services are they are deemed to be less rewarding. However, there has been increased regulation especially after the global financial crisis requiring that companies adhere to IFRS and other standards provisions in preparing their financial records. This means that there will be increased demand for book keeping services as companies strive to ensure compliance with the new reporting requirements (Francis, 2005). In addition, new taxation requirements such as carbon tax requirements as well as the heavy penalties imposed on tax evasion will force companies to increasingly seek for tax compliance services. This informed my decision to form a firm that will specialize on book keeping and tax compliance services (Christopher, 2004). Furthermore, there is not much competition in this sector which only had revenue of $2.6 billion in 2013 hence implying a great room for growth. The key external drivers for the industry include; a) Numbers of businesses- New businesses continue to be formed at an increasing rate thus providing an ongoing free revenue sources for the industry. b) Policy and legislation for accounting services – there have been numerous changes to tax and other legislation that have greatly boosted the demand for accountancy services. This includes the GST introduction as well as a variety of business tax changes especially in early 2000s which had the largest single boost to the demand in accounting services (Christopher, 2004). c) Persistent outsourcing of accounting services –increasing outsourcing of accountancy services both by the government and businesses have greatly boosted demand for the industry. d) Real GDP growth – increased economic activity usually boost demand for accountancy services in areas such as IPOs, acquisitions and mergers , takeovers, financing deals etc. when there is economic decline , bankruptcy and liquidations increase. e) Competition from legal services –merged legal and accountancy services continue to increase competition in the industry. Key success factors a) Access to highly skilled workforce –staff who are appropriately qualified and trained are essential to quality performance in the accounting service industry. b) Good reputation – Firms that develop and maintain good reputation easily attract clients c) Clear market position –specialisation is vital in focusing a firm’s resources and hence a success factor in the accounting services industry (George, 2004) d) Effective quality control –it essential to have quality control procedures in place so as to meet highest levels of regulation and scrutiny e) maintaining excellent client relations –this is essential in ensuring repeat business f) Ability to compete on tender –ability to compete for contracts and completing jobs within budget is essential for success in the industry. Target market The accounting services market can broadly be classified into a number of categories including payroll services which contribute about 25% of the industry revenue, tax preparation which contribute 20%, auditing which contribute 15%, book keeping which contribute 10%, tax consulting and general accounting which contribute about 5% of the industry revenue. However, the number of firms providing book keeping and tax compliance services continues to decline despite the fact that increased regulation and shift of accountancy to strict adherence to IFRS and similar standards provisions is likely to boost demand for these services by businesses in their bid to comply. This has informed my decision to operate in this end of the market (IBIS World Market Reports). This book keeping and tax compliance market can be categorized into a number of segments which include large clients that would include big companies as well as government, the medium sized clients, small clients, the very small clients as well as the non- employer firm. My firm to be known as Prince House and Associates will specialize on the following segments of the market; a) The non Employer businesses- the firms do not have employees as they do not have many accounting requirements like the large firms. However, the owners find it vital to vigilantly protect their tax liability while sorting out how their business and personal tax returns intersect. In addition, the owners usually lack accounting knowledge to enable them keep proper books of accounting that comply with the laid down standards. As such, they would provide a ready market for my firm’s services (Jabez, 2001). They will also become ripe for outsourcing book keeping and tax compliance services before they are able to hire full time accounting professionals to offer them book keeping and tax compliance services. As such, I expect the segment to contribute 20% of my firm’s revenue. b) The very small firms For my firm’s services, this segment will comprise of businesses with 2 to 10 employees and is composed of businesses designed to remain small as well as those that are growing. The segment will find it important to outsource book keeping and tax compliance services in their bid to stay within their small budgets, the need to cut costs while strictly adhering to the increasing regulation requirements on financial reporting and tax compliance (Marylyn, 2005). Since most of the businesses in this category do not have the financial muscle to maintain full time accounting professionals, they will not afford professional CFO’s and may not even require fulltime book keepers, outsourcing remains the best option for them. This is therefore likely to create a significant market for my firm’s services. This segment is expected to contribute 30% of my firm’s revenue. c) Small firms For my firm’s purposes, the segment will comprise of firms with between 10 and 100 employees. Although most of such businesses usually have some in-house book keeping and tax compliance help, they will definitely find it cheaper to outsource the services since they are not core to their business operations (William, 2005). Furthermore, most of their employees may not be professionally trained to ensure compliance with IFRS and similar standards while they may not be appropriately equipped to deal with tax compliance. Prince House and Associates will therefore offer them flexibility and low rate services while providing oversight and training due to our deep knowledge of accounting standards and tax compliance (Christian, 2010). The segment is expected to contribute 50% of my firm’s technology. Competitive analysis The accounting services industry in Australia has four multinationals as the main players who control 30% of the entire market while other smaller firms which are mainly local compose the remaining 70% as shown in the figure below; Price water house coopers -10% KPMG -7% Deloitte -6% Earnst & Young -7% Others -70% However, it should be noted that the major players mainly deal with large clients such as the government and large corporate (Barnes, 2009,). Most of the other players are involved in providing services to the medium sized clients while only about 10% of the industry serves the small businesses segment of the market which is the segment my firm intends to serve. As such, I do not view the big firms as my competitors since we will serve completely different markets. My main competitors are therefore small firms that serve the segments I intend to serve. Four of my main competitors are analysed below; a) Accounting & Advice This is a book keeping firm operating in Melbourne although it recently established a branch in Sydney. The company has been in operation since 2009. It also offers a financial advisory service to its clients. The company has four employees who specialize in different types of accounting. The firm mainly provides its services to medium sized businesses but does not offer tax compliance services unlike my firm. The firm differentiates itself as a low priced service provider and it offers fixed monthly rates unlike the industry norm of charging clients at hourly rates. The company has been aggressively marketing itself through the social media and has a well designed website that has been behind its success. b) Rose & Associates Established in 2002, the company operates in Sydney and has branches in Ultimo and Surry Hills. The company mainly serves medium sized limited liability companies, self employed entrepreneurs as well as joint stock companies. The company has a long history and experience and hence has already established long-lasting client relationships. Apart from offering book keeping services to its clients, the company is also distinguished in offering auditing services to its clients (Hoffman, 2002). They distinguish themselves by having high qualified staff who have worked with major accounting firms such as Price Water House Coopers and Ernst & Young c) Pioneer a accountants Established in 2010, the company has rapidly grown to have its presence not only in Australia but also in England and Georgia. The company has its head offices in Sydney. It mainly serves limited liability companies and offers a wide range of services including book keeping, auditing and financial advisory services. The company also differentiates itself as a company that provides quality services at prices that are far below the prevailing market rates. According to its website, the company has fifty employees specializing in different kinds of accounting areas. d) Caryn accountants Established in 2002 in Sydney, the company has grown to have international presence in Latvia and Estonia. The company has had considerable market share as an accounting firm that offers book keeping and auditing services to small and medium sized companies. As established above, my firm faces stiff competition especially bearing in mind that our competitors have been in operation for quite sometime and have therefore been able to establish a considerable market share. However, my firm will have a competitive edge over the numerous competitors in the book keeping and tax compliance services due to a combination of CPA oversight with lower level cheap labor to solve specific problems of small businesses. Our clients will have the advantage of their books being reviewed by CPA who will also give additional advice when and if appropriate while paying cheaper rates than they would pay their own book keepers and tax compliance advisors (Graham, 2010). In addition, we have an advantage in serving the small business market due to the fact that larger accounting firms such as our competitors ignore small businesses since they are better positioned to serve medium sized and larger businesses. Such firms will most likely not imitate my firm’s strategy since it will be difficult for them to convince small businesses of their ability to offer affordable services to them. Threat of new entrants and Barriers to entry The accounting services industry does not require such a huge capital outlay for new entrants and does not have many requirements for one to enter markets. As such, the threat of new entrants is a big one especially in the segments I intend to operate in since they have not yet been fully developed and participants in the segments remain few. I however seek to establish barriers to entry in the segments by establishing very high performance standards and offering more than just book keeping and tax compliance services to the customers (Hans, 2008). I will also offer very competitive prices to my clients such that even new entrants will find it hard to keep up with my competition. Market size As stated above, most accounting firms tend to ignore book keeping and tax compliance services. In the year 2013, the niche market contributed just $2.6 billion to the industry’s revenue. However, about 80% of this came from offering services to medium and large sized clients. The small sized business segments combined therefore contribute about $6 00 million in revenue annually. Due to the fact that my company is new and the limited financial resources available, I intend to gain a market share of 0.5% within the first year which will gradually increase to 7% by the fifth year of operation. Marketing mix a) Product My firm will offer book keeping and tax compliance services mainly to small business clients. The tax services to be provided by the firm will range from tax planning, tax preparation as well as solving of tax related problems. On the other hand, the book keeping services to be provided by the firm will include quick book services which will range from sales and set up, QuickBooks training, QuickBooks tips as well as QuickBooks quick tune services. Other bookkeeping services will range from payroll processing, accounts receivables and payables, bank reconciliations, inventory management and sales tax processing, financial statement preparation as well as other financial reporting services. The amount of money charged for these services will be based on cost accounting. Service fee will be determined on hourly basis though we seek to offer the most competitive prices in the market. I will differentiate my firm as one that offers high levels of flexibility and low rates while providing additional oversight and training coupled with our deeply rooted knowledge of CPA. My firm’s combination of CPA oversight as well as lower level cheap labor trained to solve specific problems for small business market segment will give us a competitive advantage (David, 2008). Furthermore, our clients will have the added advantage of having certified accountants review their books while giving additional advice for free where necessary thus making our services to be of extremely high quality yet cheaper than hiring own accountants for book keeping and tax compliance services. Bearing in mind that our competitors have traditionally positioned themselves as firms that offer services to large and medium sized companies, they will most likely not imitate our strategy as it will be hard for them to convince small businesses that they can offer them services they can afford. b) Pricing As indicated above, my firm intends to apply penetration pricing for the services offered with an aim of attracting customers and gaining a substantial market share. However, the prices will be adjusted after the objective has been met. The firm will apply hourly rates that will be determined at the beginning of the year but reviewed regularly when need arises to cater for changing market trends. The firm will also offer discounts based on the client’s size, nature and length of relationship established in a bid to increase client base and loyalty. The bookkeeping services will attract $40 per hour which will have a cost of sales of 50% since bookkeepers will be paid $20 per hour. The rate is relatively lower than the market rate of $50 per hour or even hiring own employees who would be paid t the rate of $35 before factoring in benefits and taxes. Although some of the competitors offer rates as low as $35 per hour, their level of service quality is very low compared to what I intend to offer. On the other hand, tax compliance services will initially attract an average project cost of $700 which is far much lower than the prevailing market rates. With this kind of pricing and aggressive marketing, I believe it will be possible for my firm to obtain a substantial market share within a reasonable time period (Christopher, 2002,). c) Promotion Prince House and associates will adopt a number of promotional strategies in its bid to obtain a substantial market share. Our main promotion tools will however be online services ranging from social networks and web newspapers. However, we will also advertise through the normal print media including newspapers and magazines (Theresa, S2010). Due to the fact that there are only few promotion avenues for firms dealing with provision of accounting services since we do not sell products that can be tried by our clients, good public relations will be a key part of our promotion strategy. We will ,endeavor to have good contact networks as well as good relations with clients in a bid to ensure repeat customers as well as referrals (Wirtz, 2003). Other promotional strategies will include discounts, product launches and sponsoring events. The company will also have a well designed website that will also serve as an online promotional avenue. With an initial promotional budget of $ 500,000, the following will be the composition of the promotional campaign Online advertisement (Facebook, Google and twitter) - 30% Print media – 25% Website development and maintenance – 25% Good PR and events sponsoring - 20% d) Place Prince House and associates will initially open offices in Sydney from where it will provide services to customers. We intend to first of all serve small businesses around Sydney before expanding our operations to other areas of the country including Darlinghurst, Haymarket, Ultimo and waterloo cities. However, we will eventually expand our operations beyond boarders as soon as we have the finances and client base to enable us do so (Lauren, 2006). Internet availability will be a vital instrument in enabling us reach not just customers located in Sydney but also in others areas of the country. Market feasibility and conclusion As stated above, the Australia’s accounting services industry is rapidly growing and is expected to hit $18 billion revenue by the year 2015-16. The growth is expected to stem from increased regulation by the government in a bid to shield the economy from such effects as were witnessed during the global economic crisis. The growth is therefore expected to boost demand for accounting services as businesses strive to ensure strict compliance to regulations and standards. Furthermore, the economy is expected to continue in an upward growth which will result in emergence of new businesses which will further boost demand for accounting services (Cole, 2005). Despite the projected growth in demand for accounting services, most accounting firms tend to specialize in offering high end services such as auditing, superannuation, financial planning and information and communications technology while ignoring lower end services such as book keeping and tax compliance services. Furthermore, most accounting firms tend to target large and medium sized clients while ignoring small clients. It is estimated that these forgotten market could have annual revenue of $600 million. This is what informed my decision to operate in this market. I believe that this market segment has a great potential and my firm will be able to obtain a substantial market share in it as explained above. References: Barnes, G2009, Managing service marketing, Fort Worth, Harcourt college publishers. Christian, C2010, Service management and marketing: A customer relationship approach, Oxford, Oxford University Press. Christopher, H2002, Managing service: Marketing operations and human resources, Englewood Cliffs: Prentice Hall. Christopher, L2004, Services marketing: Technology, People, strategy, International Marketing Journal, vol.4, no. 2, pp.19-25. Cole, C2005, Service marketing: principles and practices, Englewood Cliffs, Prentice Hall. David, K2008, Service marketing, New York: John Willey& Sons. Francis, G2005, Service business marketing plans, Lighthouse Publishers, London. George, K2004, The components of Marketing mix, Academy of Marketing Science Review, vol.122, no.2, pp. 192-199. Graham, C2010, Service operations management, Sydney, Prentice Hall. Hans, K2008, Service marketing management: An international perspective, Sussex: John Willey& Sons. Hoffman, M2002, Essentials of service marketing: Concepts, cases and strategies, London, Rutledge. IBIS World Market Reports, Report on accounting services in Australia, Retrieved on April 24, 2013, from: https://docs.google.com/viewer?a=v&q=cache:eIkMv6bB2WQJ:www.hcindia- au.org/pdf/Report%2520on%2520Accounting%2520Services%2520in%2520Australia.p df+&hl=e n&pid=bl&srcid=ADGEESjZGD3SuirrrGHy2lflariXJQWjIa2R- y0Bb9jcHyzG2kar16zCVTcaRI2K0J1o5- T2Hng4CtAbgDbTTb Jabez, M2001, Service Marketing: Differentiation, Service marketing quarterly, vol.21, no. 2, pp. 54-58. Joseph, N2007, Principles of marketing, Oxford, Oxford University Press. Lauren, W2006, Principles of service marketing and management, Upper Saddle River, Prentice Hall. Marylyn, N2005, An overview of accounting services industry in Australia, International marketing Review, vol. 28, no. 2, pp.19-28. Miriam, W2011, The marketing plan handbook, Pearson, New Jersey. Theresa, S2010, Handbook of services marketing and management, Thousand Oaks, Sage. William, G2005, understanding service management, West Sussex, John Willey& Sons. Wirtz, J2003, Service marketing in Australia, managing people, technology and strategy, London, Long Horn. Read More