Why Are Businesses So Persistent?

Present-day economies of cutthroat businesses, emerging power-hungry firms, and exponentially increasing competitors, might introduce substantial amounts of difficulties to new businesses trying to enter the market. This reaffirms the pre-existing notion that survival is for the fittest, in which only the tenacious can profit. Despite these disheartening circumstances, many companies work against the odds and persevere, invoking many looking from the outside to question, what objectives do these businesses have to drive them to continuously persist?

 

The paramount objective for every business is to survive

Businesses, at a minimum, need to be able to settle fixed and variable costs in order to achieve break-even. Most new businesses will face barriers to entry which hinder them from earning revenue, sequentially placing pressure to take respective measures to combat this. This business objective can be demonstrated by struggling retailers attempting to stimulate business through Black Friday sales.

CBS News Business Analyst Jill Schlesinger states that she believes this season is critical for many big retailers, and that retailers “have to meet the consumer where the consumer wants to shop”.

Black Friday is a shopping tradition which annually generates a substantial profit for most businesses in countries who participate in it such as USA or Canada. This was demonstrated in 2017 when a colossal amount of £1.4bn was earnt through online sales in the UK and in 2016 when records of 137 million people visited physical stores in the US throughout the holiday. Many small businesses participate in this tradition, in hopes of boosting revenue and to cover all its pre-existing costs. The private company Neiman Marcus had to reel from billions in losses and have a debt accumulated from early 2017,  prompting them to embark on its most aggressive holiday sales as they marked down their entire inventory by 10% to 50%.

This fundamental objective of survival is portrayed through other retailers such as Sears, Target or Macy, who have all dropped prices and increased discounts in response to their declining sales and stocks. Most businesses struggle to maintain break-even, demonstrating once again the importance of survival.

Many companies place maximizing profits as a predominant objective

Profit maximization purely encompasses specific courses of action which would financially benefit the company, not taking into account other factors such as environmental or ethics. Thus, in the scenario that an action aiming to maximize profits has unforeseen negative externalities or an unfavorable appearance that comes to light with the public, this might cause controversy and backlash.

Taking a look at the American on-demand transportation company Uber, it demonstrates how businesses might pursue every given opportunity to maximize profits, even if it meant that their actions might negatively affect the company. In 2017, the New York Taxi Workers responded to Trump’s immigration ban by announcing a one-hour work stoppage at JFK out of solidarity of the thousands of protesters trapped at airports suffering from this.

BREAKING: NYTWA drivers call for one hour work stoppage @ JFK airport today 6 PM to 7 PM to protest !  -NY Taxi Workers

This caused a period of momentary urgency for travelers to find transportation, in which Uber released a statement saying that they had reduced their prices and rid surge prices temporarily for transportation at JFK.

Surge pricing has been turned off at Airport. This may result in longer wait times. Please be patient. -Uber via Twitter

Most interpreted this as Uber taking advantage of the situation and attempting to maximize profits, causing a large backlash, giving existence to the trending hashtag, “#DeleteUber”. Uber profited briefly from this incident as their demand skyrocketed due to their spontaneous decision to lower prices, but had consequential criticism which resulted in profit and market share losses. This demonstrates the tendency and ambition for businesses to take actions which have the sole purpose of maximizing profits.

 

 

Market shares is a main source of revenue for many businesses

Businesses value market shares have the ability to issue stock causing it to have a significant contribution to many business’s revenues. Maintaining and increasing market shares is a prominent objective as it has the ability to determine the market’s perception of your goods or service, which is a prerequisite for growth, as well as simultaneously providing an alternative to debt financing. Businesses often take definitive measures and courses of actions with the intent to raise or maintain market shares.

Drawing attention to the strategic cooperation that Xiaomi and Meitu agreed upon, it can be noticed how the element of market shares can affect business decisions. The agreement encompassed Xiaomi developing, selling and promoting upcoming Meitu phones, whilst Meitu continuously supporting imaging technology and beautification algorithms for Xiaomi. Meitu will accordingly receive 10% of the gross profit of the joint production for the initial 5 years, following by a guaranteed share of $10million annually for the next 25 years. Many speculate this move was initiated by Xiaomi to boost its market share to compete with rivals such as Huawei, Vivo or Oppo.

It can be noted that Xiaomi has been lagging behind its front-running peers in the market share, as it remained stable in China at an estimated 13% to 15% over the past five quarters, whereas Huawei’s high market share of 26% and Vivo and Oppo maintain a 16% and 21% respectively. Xiaomi has been taking measures in an attempt to surpass the competition, such as increasing brand image through heavy advertising. This demonstrates how firms will prioritize their shares in the market if their profits are heavily dependent upon it.

 

CSR has become a key component in business strategies

Corporate Social Responsibility (CSR) is an indispensable ethical management concept in which companies integrate social and environmental concerns in their business operations and interactions with their stakeholders. This objective is gradually increasing in popularity not only between businesses but amongst the new generations of millennials, many are in agreement that they would prefer work that matched their values over work with high pay, demonstrating the newfound eagerness for companies to adopt more CSR initiatives. Companies can adhere to Chipotle’s and Intermarché’s exemplary campaign-“The Inglorious Food and Vegetable”-which was a response to the one-third waste of every food produced, and accumulated average $680bn waste amount per developed country.

“This initiative is a complete success because it’s a win-win-win campaign: consumers get the same quality products for cheaper, the growers get money for products that are usually thrown away and Intermarché increases its business by selling a brand new line of products” -Intermarché

Another model of an effective CSR initiative is TOMS Shoes, who have dedicated themselves to give a new pair of shoes to an impoverished child, and when they sell eyewear part of the profit is used to save or restore eyesight for people in developing countries. Since their launch, they have given over 60 million shoes to children and continuously launch new initiatives to address challenged faced by communities around the world. These demonstrate how CSR can be a motivation for the entire business, and the sole objective and basis of the company’s existence.

 

Maximizing profits is a persisting objective for many

As revenue stems from the total amount of income generated and essentially represents a business’s sales. Businesses who pursue this objective will not necessarily implement actions from a financial approach, as unlike maximizing profits, revenue takes into consideration other factors such as their public image. A revenue maximization strategy dictates that a business should do whatever is required to sell as much of its product as possible.

By carefully managing each airplane’s schedule, the maintenance requirements are met with minimum down time. Airplanes are deployed to produce the maximum amount of revenue possible in the shortest time.

John Cox, an ex-pilot formerly employed by US Airways, stated that this airline company adopted several approaches and working styles to maximize revenue stemming from a hectic schedule of planes traveling back and forth on a regular basis. To maintain a perpetual flow of planes which accommodate to consumer demand, they “design techniques and maintenance programs” to ensure mandated security throughout overseeing these demanding schedules.

Moreover, as the supply of airplane tickets are relatively inelastic, to further increase the quantity supplied per each flight airlines tend to install smaller seats thus fitting more seats per airplane, translating to more profits. This epitomizes methods businesses can enforce to maximize revenue and how maximizing revenue can have a greater interest than other objectives to certain companies.

 

 

These five objectives illustrate several fundamental motivations which drive firms to consistently participate in the market. However, this list is in not exhaustive and present day markets allow numerous businesses to enter the market, indirectly increasing the diversity in objectives and practices.

One thought on “Why Are Businesses So Persistent?

  • mm
    27 Nov 2018 at 12:13 am
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    I will show this to the staff later today Emily. Thanks for writing so much. I will try to remember some of the companies you mentioned next time I teach the topic. I hope this also helps you if you ever have to use some examples.

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