Evaluate, using your own examples, how a business can still make a profit and stay competitive during a recession. [40]
In the most recent years multiple countries have been affected by a downturn in the economy causing a recession. Profits for some businesses have been heavily reduced and others have benefitted from the effects and made a profit.
The recession cases problems for many people in that the money available to them is reduced and that they cut costs on spending. The first way in which a company can still make a profit is through innovation of the product line. For instance, Amazon made large profits throughout the most recent recession, the extended product lines with the ‘kindle Fire’ allows the company to appeal to a larger customer segment, leading to a larger market share, therefore leading to larger sales revenue increasing the profits made for the business. Although the demand for luxury products was decreasing, the selling prices of Amazon’s tablets were extremely cheaper in relation to Apple’s iPad, which benefitted and appeal to the customers more. Secondly the new product development so the business allow the company to become more competitive in the market as it increases the choice of products for the customers, which can potentially improve the customer satisfaction and brand loyalty of the business therefore leading to a more competitive structure in the business which in the long-term can improve the profitability of the company and also ensure long-term growth with the extending product lines. The ability of creating a new product line requires market research to understand how the customer needs have changed, and the ability to meet those needs, and also the funds available to research and develop new products for the market. However, with the economy only effecting a certain area of customer wealth, not all customers will experience a fall in income or reduced spending, therefore the sales for the new products may not appeal to these customer and the bran loyalty and reputation for this segment may be damaged. In the long-term this will affect the company’s sales when the economy begins to grow again.
The Second method of creating profits in the recession is through the reduction of the companies’ costs, to maximise the companies’ profits. With many businesses in the recession, sales revenue with reduce as the demand for products decreases due the customers also reducing their spending. Therefore costs will have to be reduced in order to maintain a profit. Ford encountered massive cuts in costs in the upcoming to the recession, such as Job cuts for the employees. The downfall to this is that the HRM side to the company could become less effective in that, staff motivation and work rates could reduce. Maslow’s hierarchy of needs shows that the job security is a factor in the employee’s motivation, and the sudden job reductions do not meet these needs. Meaning in the short-term the company could potentially lose highly skilled staff, and also create large costs for the redundancies made. But in the long-term the company benefit from reduced costs from wages and salaries, allowing them to increase their profits and survive in the recession. Furthermore this could then lead to satisfaction of the shareholders, and this could maintain or potentially increase the dividends for the shareholders. The recession in the economy may become short-lived and the sudden reduction in employees will reduce the capacity of the business. Therefore meaning that when the economy then recovers and there is a growth in demand, the lowered capacity could potentially cause problems with companies meeting the demand, which then could also affect the company’s brand image.
Another reason in which a business can still make profits within a recession is through entering a new market. If the economy is ain a recession in one country, then other may not be. So entering a new market has the potential for companies to
