Business Objectives: Survival and Profit Maximization

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Questions and Answers

What is one reason why businesses may prioritize sales maximization over profit maximization?

Sales targets are seen as more satisfying and directly linked to employee salaries. (correct)

Profit figures can only be evaluated annually.

Sales figures are more challenging to track than profit figures.

Sales maximization leads to an increase in market share.

In which scenario is achieving a high market share especially important?

In a very competitive market where consumers frequently switch suppliers. (correct)

In businesses that prioritize employee welfare over financial metrics.

In a monopolistic market with little competition.

In the service industry where customer satisfaction is the sole focus.

Which method is NOT listed as a way to achieve cost efficiency?

Paying minimum wage to unskilled workers.

Increasing the quality and price of the product. (correct)

Eliminating material and process waste.

Subcontracting economically.

What is a significant benefit of focusing on employee welfare within a business?

It ensures employees are loyal and productive, enhancing public image. Signup and view all the answers

Which strategy is commonly used to monitor customer satisfaction?

Performing surveys to gather feedback on service levels. Signup and view all the answers

What is a key aspect of corporate social responsibility (CSR) objectives?

Reducing negative impacts on the environment and society. Signup and view all the answers

Which of the following is a potential consequence of losing market share?

It may indicate serious long-term financial problems for the business. Signup and view all the answers

What is the primary focus of a business with survival as its objective?

Establishing a customer base Signup and view all the answers

Which of the following is a characteristic of survival as a business objective?

It is usually applied to new businesses. Signup and view all the answers

How does a business typically achieve survival in its early stages?

Utilizing penetration pricing. Signup and view all the answers

What is the main goal of profit maximization in a business?

To optimize the use of resources for maximum profit. Signup and view all the answers

Why is profit maximization considered an important objective for businesses?

It helps recoup research and development costs. Signup and view all the answers

What is 'shrinkflation' most often associated with?

Decreasing product size while maintaining the same price. Signup and view all the answers

In the context of profit maximization, how does shrinkflation benefit businesses?

It allows price increases without alarming consumers. Signup and view all the answers

What primary aim does a business have when it focuses on reaching its break-even point?

To cover all its costs without incurring losses. Signup and view all the answers

Study Notes

Survival as a Business Objective

Survival is a short-term goal, typically for new or startup businesses.
Objectives focus employees on shared business aims.
Businesses have varied objectives based on product/service, industry, and owner goals.

Survival

In the first year, the goal might be just to survive and build a customer base in the market.
The objective is to reach a sustainable level of sales to break even.
Penetration pricing of products/services might be used initially to establish the business.
While profit might be minimal during startup, the business should aim to comfortably raise prices as it gains traction.

Profit Maximisation

Profit maximisation is when businesses aim to make the largest possible profit from available resources.
Profit maximisation is crucial for recouping research and development costs (R&D).
Maintaining high product development and innovation levels is vital for profit maximisation.
Profit maximisation is usually important for stakeholders.

Profit Maximisation - Shrinkflation

Shrinkflation is a strategy where products are made smaller while the price remains the same.
This could be connected with profit maximisation as it can increase profits without increasing the price.

Other Objectives

#1 Sales Maximisation

Some businesses prioritize sales maximisation as an objective.
Sales figures are often reviewed daily, weekly, or monthly for this purpose.
Sales figures can be important metrics for assessing business performance for investors.
Sales maximisation can be important for businesses in industries that heavily depend on sales, like real estate or car dealerships.

Market share represents a business's percentage of a specific market, measured by either revenue or units sold.
Holding a large market share can be an objective in competitive markets where consumers frequently switch between suppliers, like supermarkets.
A decreasing market share can signal potential financial problems.

#3 Cost Efficiency

Cost efficiency, a common goal in transport and construction industries, involves reducing costs by 70% for their services and goods.
It can be achieved through various means such as paying minimum wages to unskilled workers, economically viable subcontracting, improved lean processes to reduce waste, strong branding and improving economies of scale.

#4 Employee Welfare

Some businesses prioritise employee well-being as an objective.
This approach aims for harmonious relations with employees, and actions to improve their welfare might include medical insurance, housing, education, and internal benefits like canteens, crèches, and uniforms.
Satisfied employees generally are loyal, hard-working, and productive. This positively impacts business image and recruitment.

#5 Customer Satisfaction

Customer satisfaction is a common objective in the service industry, particularly in coffee shops and similar businesses.
Monitoring and improving customer service quality levels through customer surveys and focusing on quality is important.
Businesses can improve customer satisfaction through understanding customer needs, handling complaints, building repeat customer loyalty with customer-centered approaches and creating positive word of mouth, which can all be cheaper marketing methods.

Social responsibility plays a part when corporate objectives are set.
Examples of social objectives include reducing environmental impact, promoting fair wages in developing nations, helping communities, and ensuring compliance with laws concerning noise pollution and working hours in their communities.

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Description

This quiz explores the essential business objectives of survival and profit maximization. It covers the strategies startups can employ to build a customer base and the importance of profit for sustaining operations and fostering innovation. Test your understanding of these key concepts in business management.