Do Private Sector Businesses Need To Maximise Profits To Survive In The Long Run?
While a business is running and producing their goods or services, they have short and long term goals and to achieve these goals they have aims and priorities. A privte sector business can aim to maximise profits, growth, sales or even simply survival. These business aims have different results and businesses may choose to select different aims at different times to reach their goals. The variations in business strategies depend on both the firm itself and in which stage of development and growth it is in.
Some firms, especially companies that work with subscription business models tend to have stages in their growth or consistent techniques that fall under sales maximisation rather than profit maximisation. For example, entertainment and music providers such as Netflix, Spotify, Amazon Prime or Disney+ offer a certain length free trial which does not immediately maximise profits. The benefits of employing ideas like these are that many consumers will grow attached to the service within the free trial and therefore provides said consumers with more incentive to stick with the firm and pay the fees once the trial ends and they begin to be charged. This sales maximisation also encourages brand loyalty and allows them to use the reasonably inelastic demand to raise their prices and therefore eventually their profits in turn although it may not be their initial priority as seen, this technique allows businesses to survive and thrive in the long run although they may not be aiming to maximise profits and may be sacrificing some profits in providing these tasters and trials.
Many corporations that had previously maximised profits have had to move away from this aim for at least a short period due to many social issues that come from it. A large example of this is Nike who cut costs so drastically to gain more profits that they began exploiting workers and utilising sweatshops in lower income countries, even having workers trade sexual favours for jobs. Once this was discovered, many consumers began to protest and boycott Nike which caused a large drop in sales and revenue. During and after this scandal Nike had to work significantly on their corporate image to survive and therefore had to stop maximising profits in such a way as it could have potentially been their downfall rather than helping them thrive in the long run. Companies such as Sports Direct have had similar experiences with workers to a lesser extent when allegations went out addressing that workers were being mistreated and
underpaid in the UK. This meant that once again sales dropped and revenue was affected proving that profit maximisation is not always the best technique for long-run success and in some occasions corporate image holds more importance and a higher impact on the company’s long-run success.
Although it is commonly considered that profit maximisation is the default aim for businesses, not all businesses can afford to maximise profits straight away. This is commonly found in businesses such as startups where they prioritise growth over profits because profits will come in turn once a level of growth is achieved. Companies that are aiming to grow for other reasons for example to achieve economies of scale may put their profit maximization goals to the side and therefore prioritise employing other tactics to grow so that they, therefore, cut costs and
inadvertently gain profits.
In conclusion, although many private sector businesses maximize profit as their main goal, there are many other goals that companies could focus on to improve their corporations in other ways and for other reasons. Additionally, profit maximisation may be more harmful for the firm in the long run if an extreme approach is taken and it gets out of hand with cutting costs closer to cutting corners as seen when discussing Nike. therefore proving that the statement is not accurate and companies may need to find other aims to survive and potentially thrive. The decision of which aim to use is highly dependent on the individual firm along with their stage of development and production.