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If a company wants to cut costs in a bad economy, which is it most likely to do first:...

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Kay Morse | College Teacher | (Level 1) Senior Educator

Posted April 26, 2013 at 5:32 AM via web

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If a company wants to cut costs in a bad economy, which is it most likely to do first: reduce staff, reduce packaging steps or materials, or reduce quality and/or quantity of the product? 

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

Posted April 29, 2013 at 2:46 PM (Answer #1)

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If the company is wise, the first thing that it will do when it is faced with these options in a bad economy is to reduce the costs of its packaging.  The reason for this is that reducing packaging materials and steps is the action that will help reduce its costs without reducing its competitiveness and ability to keep its customers.

If a firm reduces the number of staff that it employs, it can be hurting itself.  It thereby reduces its ability to make the amount of product that it had previously made.  It hurts morale and can lead to lower productivity.  It may hurt its ability to quickly respond to customer demands.  All of these things hurt a firm’s competitiveness.

If a firm reduces the quality or quantity of its product, it hurts itself as well.  Reducing quantity can lead to lost customers.  So can reduced quality.  It should only do these things if it is really desperate.

By contrast, reducing packaging costs is a more ideal solution.  Reduced packaging does not typically affect the quality of the product in the eyes of the consumer.  This means that people will still be likely to buy the product while, at the same time, the firm enjoys lower costs.  For these reasons, a firm ought to reduce costs by reducing packaging if it is faced with these choices.

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