Tutor profile: Nic P.
Explain two problems that low quality might cause a business
A business will risk losing its brand loyalty. People no longer see the business as high quality as the product will not meet their expectations. This could reduce sales if the product used to have a higher quality, or will result in few repeat customers. The business will also suffer damage to its reputation and brand. This will impact any future marketing of the product as the target market will already have preconceptions of the business. This will also impact any future products they produce as they will be linked to the previous low quality products in the minds of customers through the brands reputation.
How can the cost of premises impact a start up business?
Location is important for any business. If the site is too expensive it can mean that the fixed costs of the business are high and there is a risk of smaller or no profits being made. This risk could be lowered in a cheaper premises. All new businesses need customers and the quicker customers are gained, the more successful the business is likely to become. Businesses in a convenient location can add value to their products through this convenience. This can aid the business in paying the higher cost for the premises. The business will have needed investment and start up capital in order to begin operating. A higher price and increase in customers will result in these costs/investments being able to be paid earlier giving the business more retained profit once they are.
Explain the benefits and negatives of a business operating with a low level of inventory.
Inventory are goods or materials that are required in the process of production. It can take many forms of finished, work in progress or raw materials. The costs of holding low level of inventory is that there will be many small delivery charges that increase transportation costs for the business and prevent an opportunity for an economy of scale. In this scenario, average costs will increase and profits will be negatively impacted. Should demand rise, less inventory may lead to the business operating below full capacity due to lack of materials and therefore unable to meet the new customer demand. This in turn may lead to customers buying from other businesses and losing trust/loyalty to the business. Benefits of holding low levels of inventory are that it helps to reduce opportunity costs as cash will not be tied up in inventory. This cash can instead be invested in more economically profitable investments. Reduction of storage costs will also be a result of low levels of inventory and result in the space and storage being used in more productive ways. Lower stock levels also limits the businesses exposure to suffering from inventory depreciation or damage. Keeping finished products in storage could be an issues should the product become outdated, resulting in the business having a high waste cost.
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