Section-3

• Marketing, competition and the customer

• Market Research
• Product
• Price
• Place
• Promotion
• Technology and Marketing Mix
• Marketing Strategy

Section-4
• Production of goods and services
• Location decisions
• Achieving quality production
• Costs, Scale of production and break-even analysis
 Section-3
Marketing, competition and the customer

The role of marketing

• Identify and satisfy consumer needs
• Keep customers loyal
• Gather information about customers
• Recognise how customer’s needs are changing
• Marketing goals
• Develop products that meet customer needs and wants
• Promoting product to customers
• Increase sales
• Target a new market
 Market changes
• Why do consumer spending patterns change?
• Consumer taste and fashion change
• New technology being developed
• Changes in consumer income
• Ageing population

How Business response to these Changes!

• Why have some markets become more competitive?

• Globalisation – Businesses can sell their products worldwide
• Better transportation allows products to be distributed all over the
world
• Internet e-commerce (online shopping) allows customers to
purchase goods from around the world
How can businesses respond to increased competition?
• Develop and maintain customer loyalty
• Keep improving their product(s) and develop new ones that meet
consumer needs and wants
• Keep costs low to remain competitive
• Make their products better than their
 Concepts of niche marketing and mass marketing

• Mass marketing – Aimed at the whole market

Mass marketing produce in large quantities of products and intend to
appeal to the widest range of consumers.

Advantages
• High sales and demands (higher number of consumers) which may
lead to high profits
• Benefit from economies of scaleo
Disadvantages
• Higher competition
• Product is aimed at the whole market so specific customer needs are
not met
•
Niche Marketing
• Niche marketing is a form of marketing geared towards targeting a
specific audience, united by needs, preferences, and identity
Eg- Tailoring product to a particular type of customer (small
specialised market)

Advantages
• Small businesses can avoid competition from larger businesses
• Product meets specific consumer needs
Disadvantages
• Smaller number of consumer so growth is difficult
• Risks are not spread so if demand for the specialised product falls,
the business will likely fail unless they develop more products
Market segment
• Sub group of a market with a group of consumers who have similar
characteristics

Ways that businesses can segment a market

• Gender
• Age
• Income
• Location
• Lifestyle
• Use of the product (e.g. for personal use, business use)
Advantages
• Business can concentrate on specific needs of a particular type
of consumer
• Marketing becomes more effective (e.g. advertising)

Disadvantages
• Business may only focus on one segment which is very risky
(incase demands fall business wont make money)
 The role of market research and methods used

• Market research – Research carried out to identify current and

future consumer needs and wants
• Product-orientated business – Produce a product then try to
convince people to buy it.
• Market orientated business – Perform market research to discover
consumer needs and wants then develop a product that meets their
needs and wants.

• Businesses use market research to develop and produce products

that consumer wants. Market research allows us to find out if
• People would buy the product
• What consumers like and hate about it
• The price consumers would pay for it
• Who would buy the product?
• What their competitors are offering
Types of research
• Primary research – Collection of original information by directly
contacting with potential or existing customers

Ways of collecting primary research

Questionnaires
• +Detailed information and opinions about the product
• –Expensive and time consuming
Focus group (Group of consumers give detailed opinion about product)
• +Very detailed information
• –Expensive and time consuming

Interviews
Observation
• Sample – group of people selected to respond to market research
questions such as interviews
• Random sample – Samples are chosen randomly without reasons
• Quota sample – People are selected based on certain characteristics
(e.g. age, income)

Secondary research – Information that has already been collected and

is available for use
• Eg- Departmental records
• Newspaper
• Internet
• Reports
• Statistics
Market research is not always accurate
• Questions could be biased
• Sample may just give their own opinions
• Size of samples may be too small
• Secondary research information can be outdated or inaccurate e.g.
inaccurate info from internet

Presentation and use of market research results

• Market research results can be presented in ways such as
• Tables
• Tally charts
• Graphs
• Charts
 Product
Types of products
• Consumer goods – consumed by people (final users of the product)
• Consumer services – services for people
• Producer goods – goods produced for other businesses to use (e.g.
machines, raw materials)
• Producer services – Services for other businesses (e.g. Corporate
lawyers, business consultants)

What makes a product successful?

• Satisfies consumer needs and wants
• Low production cost to make profit
• Quality of the product that is kept consistent with the product image
• Introduced to the market before competitors
• Unique
Brand image
• Brand name – Unique name of a product that makes it different from
other brands
• Benefits of branding – Advertising makes consumer aware of the
quality of the product and persuades them into buying the product
• Brand loyalty – When customers continue buying from the same brand
instead of the competitors

Roles of packaging
• Protection
• Protects the product
• Easy for transportation
• Allows the product to be used easily
• Suitable for the product
Promotes the product
• Attractive and appealing to customers
• Consistent with the brand image of the product (e.g. High end
product in a fancy packaging)

Product life cycle

A product life cycle is the length of time from a product first being
introduced to consumers until it is removed from the market. A
product's life cycle is usually broken down into four stages;
introduction, growth, maturity, and decline.
 Product life cycle

• Development – Product is being developed, The business is

spending money on research and development. There are no sales at
this time.
• Introduction – Product is introduced onto the market, sales are
starting to grow. Informative advertising is used to make consumers
aware of the product.
• Growth – Sales are growing rapidly, Persuasive advertising is used.
Prices are reduced as competitors introduce their product to the
market. Profits are now being made as the development costs have
been covered.
• Maturity – Sales of the product increases slowly, there is intense
competition. Pricing strategies such as competitive or promotional
pricing are being used to compete with competitors.
• Saturation – Sales have reached its highest point. Growth has
stopped. Competitive pricing is used.
• Decline – Sales of the product has started to fall, Eventually, the
product will be taken out of the market.
 Extending the product life cycle
• Introduce new variations of the original product
• Sell the product into new markets (e.g. distribute to other countries)
• Increase and create new advertising campaigns
• Lower the price
• Make changes to the product (e.g. new packaging)
 Price
Pricing Methods
Cost plus pricing – Cost of producing the product plus a profit
• +Method is easy
• -Lose sales if the selling price is a lot higher than your competitor’s
price
Competitive pricing – Product priced similarly to or just below the
competitor’s price
• +Sales are likely to be high as the price is competitive
• -Researching your competitor’s prices can take time
Psychological pricing
• Charging high prices for a high-quality product so consumers
purchase it as a status symbol
• Prices just below a whole number ($1.99)
• Charge low prices for some items to attract customers into the store
Penetration pricing – Low price for a new product in order to attract
customers from existing competitor’s products.
• +Useful if launching product to a new market
• + Ensures product will be sold so the product enters the market

Price Skimming – High price is set for a new product on the market
• +Can make people think product is good quality because it’s
expensive
• – Consumers may not buy the product because they think its
overpriced

Promotional pricing – Product sold at a low price for a short period of

time.
• +Useful when clearing old stock that doesn’t get sold
• + Promotes the business
• – Low sales revenue as prices are low
 Place

Producer to consumer (Products sold directly to customers) – This is

when the manufacturer sells the products to the customers who are the
final users of the product

Advantages
• Very simple
• suitable for some types of products (e.g. products from farms)
• Lower price for consumers
Disadvantages
• Not many customers live near farms/factories so it is difficult for
them to buy the products
• Transporting products to consumers can be expensive and not worth
it.
• May not be suitable for some types of products
Producer to retailer to consumer – Producer sells products to retailers
who then sell the products to the consumers
Advantages
• Lower distribution costs (Only need to transport to the retailers not
individual customers)
Disadvantages
• No direct contact with customers
Producer to wholesaler to retailer to consumer – Wholesaler divides
large bulks of products into smaller ones for small retailers to buy.

Advantages
• Reduce storage cost for manufacturer and retailers
• Reduce transportation costs
• Small retailers can buy small bulks from wholesalers so products
don’t expire
• Wholesalers can give advice to small retailers on what is selling well

Disadvantages
• Price is higher for retailers and consumers
• Wholesaler may not sell every product
• Longer time until products reach consumers which may be bad for
fresh products
 Producer to agent to wholesaler to retailer to consumer –
Agent sells the products on behalf of the manufacturer in another
country so the manufacturer doesn’t have to contact foreign
wholesalers directly.

Advantages
• Agents have more knowledge about businesses in that country
• Save time for the producer as they don’t have to take care
overseas distribution

Disadvantages
• Producer has to pay the agent commision / fee
• May lose control of how the product is sold to customers
 Which distribution channel to use?
• The type of product
• Does the product need explanation (e.g. technical products)
• The price of the product
• The shelf life of the product
• Location of the customers

Methods of distribution
• Department stores
• Chain stores
• Discount stores
• Supermarkets
• Internet (E-Commerce)
 E-Commerce

Advantages for the business

• Lower employment costs – Online shops don’t require salespersons
• Website can encourage customers to buy more

Disadvantages for the business

• Increased competition as customers can compare products with the
competitors
• Delivery costs
• No contact with customers
• Technical stock control systems are required to manage online
orders (expensive)
Advantages for consumers
• Online shopping is convenient
• Prices between brands can be easily compared
• Can buy from shops all over the world

Disadvantages for customers

• Require internet connection
• Products such as clothing cannot be tried on before buying
• No staff to explain how the product works
• Risk of credit card info being stolen when buying from unsecured
websites
 Promotion
Aims of promotion
• Increase sales and market share
• Create a brand image
• Introduce new products to the market
• To compete with competitors

Advertising
• Informative advertising – Give audience detailed information
about the product
• Persuasive advertising – Tries to persuade audience that they need
the product
Advertising methods

• Local newspaper (for local businesses) Cheap, Lots of information,

Permanent copy. / Not eye-catching, boring
• National newspaper (nation wide businesses)
• local or national television Seen by many people, video can be
interesting, choose which time to advertise (ad will be seen by target
audience) / Very Expensive
• Internet Lots of information,
• Specialist magazines Read by audience with certain characteristics
e.g car magazines, sport magazine
• Social media
• Billboards
• Leaflets Cheap, Permanent copy, Range of audiences (given to
anyone) / May not be read
Sales promotion – Special deals to attract customers short term.

• Price reductions – Reducing the price to attract customers

• Gifts – Products for e.g. toys that comes in cereal boxes makes
customers want to buy it.
• Competitions – Products that comes with entry to competitions
such as winning a prize. (e.g. Win a car or airplane tickets)
• Point of sales display and demonstrations – Demonstrations to
show how product works (e.g. Food displays or cooking
demonstrations at supermarkets)
• After sales service – Customers like buying from shops that
offer repairs and maintenance
• Free samples – Free samples can encourage customers to buy the
product if they like it (e.g. Food samples at supermarkets
Advantages
• Maintain high sales throughout the year
• Encourages consumers to buy the products
• More competitive
Marketing budget – Financial plan for marketing of a product for a
specific amount of time.

Which type of promotion to use?

• Stage of product life cycle
• Advertising budget
• Nature of the product itself

Public relations
• Strategies used to promote a good image for the business. (e.g.
Sponsoring activities such as sports or charity events.
 Technology and the marketing mix

Advantages of businesses advertising on social networking sites

• Can target specific types of consumers
• Advertisements and information can be edited/updated quickly
• Quite cheap

Disadvantages
• Customers may find online ads annoying
• Pop up advertisements cost money
• Advertisement can be edited by audience in a bad way (e.g. internet
memes)
Advantages of business advertising on their own website

• Don’t need to pay for ads if website already hosted

• Ads can be changed/updated anytime
• Can provide more information on their own website

Disadvantages
• Fewer viewers
• May not be seen by most people
•
 Marketing strategy

Marketing strategy – Plan to combine the 4 P’s of marketing (Product,

Price, Place, Promotion) in the right combination to achieve a
marketing objective.
• Examples of Marketing objectives
• Increase sales
• Increase market share
• Entering a new market

•
The nature and impact of legal controls related to marketing

• Legal controls on marketing

Here are a few examples

• Misleading promotion – Falsely advertise a product.
• Weights & measures – Businesses can’t sell underweight goods
(e.g. chocolate bar containing less chocolate than advertised)
• Sale of goods – Businesses can’t sell products that are faulty or
doesn’t work like it is advertise
The opportunities and problems of entering new markets
abroad

Why businesses enter new markets abroad?

• Low trade barriers – low trade barrier allows businesses to

easily and profitably trade between countries.
• Home markets are saturated – demand for the product are no
longer growing the country.
• Other countries developing – New markets opens up abroad as
other countries become more developed.
Problems businesses face when entering a new market

• High transport costs – increased costs as businesses have to pay to

ship products abroad.
• Lack of knowledge – Company X may not know consumer habits in
the country they are expanding to. (e.g. where consumers like to
shop)
• Trade barriers – Countries may have trade barriers to protect local
businesses, this may make importing products less profitable for the
business.
• Exchange rate changes – Exchange rates can change which may
mean cost of importing products may become more expensive.
Ways for businesses to overcome these problems

• Joint ventures – A joint venture can be created between a business in

country X and another business in country Y, this means that
business X can gain information from business Y.
• International franchising – An example of this is McDonald’s a US
company can sell its franchise to a franchisor in China with local
knowledge.
• Licensing – Business in country X can sell the license of their
product to a business in country Y, This can avoid transport costs
and trade barriers
 Section-4
The meaning of production

• Production – Process of adding value to a product (using four

factors of production – land, labour, capital and enterprise) to satisfy
customer needs and wants.

• Productivity – How a business measures it’s efficiency

• Productivity could mean using fewer inputs to produce the same
amount of output. Or using the same amount of input to produce
a greater amount of output

Ways to improve productivity

• Improving layout of factory so production becomes faster and more
efficient
• Training workers so they can be more productive
• Using automation
Benefits of increasing efficiency/productivity
• Lower cost per unit
• Less employees needed (reduce labour cost)
• Reduces overall costs.

Why do businesses hold stock?

• Businesses keep stocks for a variety of reasons, for example,
factories keep raw material inventory to make sure there are enough
materials for production while a shop might hold stock to ensure
that products are available to customers.
Too much stock
• Money wasted on storage cost
• Depreciation cost
• Shelf life (items may reach best before date before being sold)
• Money could’ve been used on something else

Not enough stock

• Opportunity lost (profit could be made if product sold)

Buffer stock – inventory to deal with sudden customer demands for

a product or in case supplies doesn’t get delivered on time.
•
What is Lean production?

Lean Production – Term for techniques used by businesses to

cut down waste and increase efficiency
.
Common wastes in businesses
• Overproduction – Producing too many products which then
costs the business money to keep the product in storage. (and
may get damaged/expires etc..)
• Waiting – Goods not being processed
• Transporting – Materials being moved around the factory
inefficiently
• Over-processing – e.g. using advanced machine to do simple
tasks
• Defects- production of faulty products which can’t be sold.
Costs can be reduced by lean production

Benefits of lean production

• Less storage of raw materials (e..g no need for refrigeration
costs, warehouse etc…)
• Less defects in production (broken products don’t get
produced)
• Better use of equipment
• Speeding up production by cutting out unnecessary tasks
• Less money tied up in stock
 Common lean production techniques

Kaizen – Kaizen means continuous improvement by eliminating waste.

• Workers meet regularly to discuss problems and possible solutions
• In this way, wastage is reduced and efficiency is improved
• Factory floors are usually rearranged so that the flow of production
from one activity to the next is improved.

Just-in-time production
• Focus on reducing the need to hold stocks of raw material or parts
that are needed (This reduces storage costs)
• Raw materials are delivered just in time by suppliers for production
• Reliable suppliers are needed for this to work

e.g. Milk gets delivered to milkshake factory 30 minutes before

production starts, this means that the milkshake factory won’t have to
spend money on expensive refrigerators to store milk before it gets
produced.
Cell production
• The production line is divided into separate teams of workers, each
makes a part of the finished production
• Motivation is improved due to the variety of tasks and the worker
belonging to a team
 The main methods of production

Job Production –
Each product is different and made to specific instructions by the
consumer. e.g. tailor made suits, customizable birthday/wedding cakes

Advantages of Job production

• Workers have more varied job (They won’t become bored)
• Higher price can be charged for product
• Product meets requirements of the customer
• Disadvantages of Job production
• Costs of production are high because skilled labour is used
• Product takes a long time to produce
• Products are made to order so any errors may be expensive for the
company to fix
Batch production –
Similar products are made in batches (e.g. batch of white shirts then
another batch of green shirts are made)

Advantages
• Gives more variety of jobs to workers
• Production can be easily changed from one product to another
• Gives consumers a variety of products (e.g. many colour shirts)

Disadvantages
• Expensive to produce goods
• Machines have to be reset when changing from one batch to another
which slows down production (e.g. change colour of shirts from
white to green dye)
• Warehouse space is needed to store products
Flow production (Mass production) –
Large quantities of identical products are produced on a continuous
basis

Advantages
• Goods are produced quickly and cheaply (economies of scale)
• Increased efficiency through use of machinery
• Less labour is needed (machines do the work)
• Automated production line means production can operate
overnight
Disadvantages
• Very boring for workers (same product over and over)
• Starting costs are high (expensive machines, big factory etc…)
• If a machine breaks down the whole production line may stop
• Expensive storage costs as they are lots of products
Factors affecting which method of production to use

• The nature of the product – Unique products will require job

production.
• Size of the market – Products with small number of customers
mean job or batch production is used. Products with large
amount of consumers = flow production should be used.
• The nature of demand – Small and infrequent demand by
customers means job or batch production will be used.
• The size of the business – Small businesses tend to operate
using job and batch production while large business may use
flow production.
•
 How technology has changed production methods

Improvements in technology can help reduce costs and improve

product quality

• Automation – Production by equipment which are controlled by

computers.
• Mechanisation – Production by machine operated by workers
(human)
• Computer aided design (CAD) – 3D drawing software to design
new products
• Electronic point of sale – Used at checkouts where stock records
are automatically adjusted as an item barcode is scanned when it is
sold. e.g. supermarket stock
• Electronic funds transfer at point of sale (EFTPOS) – Cash
registers connected to bank (Customer’s card is swiped and money
is transferred right away from customer’s bank account
Advantages of technology
• Higher productivity
• Improved motivation as boring jobs are now done by machines
• Better quality products are produced
• Faster communication
• Improved flow of information for managers

Disadvantages of technology
• Higher unemployment as machines replace human labour
• Technology is expensive
• Technology becomes outdated very quickly and may needs to be
upgraded often
Why quality is important and how quality production might be
achieved

• Quality – to produce a good or service which meets customers

expectations.
• Why Is Quality important for a business?
• Gives competitive advantage
• Encourages return purchases
• Provides customers with information and builds consumer
confidence in the brand
• Reduces costs incurred in solving past sales problem (Customer
refunds etc..)
• Helps improve efficiency
Quality control –
Checking product quality at the end of the production process. If
defected products are found, the entire batch will be thrown
away/repaired

Advantages
• Faults are found before product is sold to customers
• Less training for the worker is required (compared to quality
assurance)

Disadvantages
• Hiring employee to check product costs money
• QC does not explain how fault occurred and can happen again.
• Fixing defected products cost money
Quality Assurance –
Checking quality standards of a product throughout the production
process.

Advantages
• Fewer customer complaints
• Tries to eliminate faults or errors before the customer receives the
product
• Fewer defected(low quality) products produced (Reduce cost
because there will be less broken/low quality products to fix)
Disadvantages
• Expensive to train employees
• Relies on employees following instructions
Total Quality Management –
Continuous improvement of products and processes by focusing on
quality at each stage of production

Advantages
• All employees are aware of the need for quality
• Less likely to receive customer complaints
• Waste (defected products) is removed and efficiency increases

Disadvantages
• Expensive to train employees for TQM
• Relies heavily on employees following this idea
 Location factors for a Manufacturing business

• Production methods – Large scale production requires the business

to be near component or raw material suppliers.
• Market – Being near to the customer is important if the product is
bulky/heavy or is perishable (likely to go bad e.g. Fresh food.)
• Availability of labour – is there a sufficient supply of suitably skilled
labour in the area
• Government influence – may offer grants and subsidies to encourage
firms to locate to a specific area (e.g. Government may want
factories to be built in area with high unemployment rates to create
jobs) The government may also restrict certain locations for
factories a specific reason e.g. to protect the natural
environment
• Transport – Suitable transport is required for supplies/products to be
delivered (e.g. near airport to deliver product to customer)
• Power – Reliable source of electricity is needed
 Location factors for a Retail business

• Shoppers – Need a lot of consumers in the area

• Nearby shops – Locate near businesses that are visited regularly
(e.g. Schools)
• Parking facilities must be close by
• Security/crime in the area

Clustering – Competitors in the same area attract consumers (e.g.

Clothing stores all next to each other)
•
 Location factors for a Service business

Retail factors apply to service business

• Customers – Be near customers for a quick response time (e.g.

Electrician located in residential area can provide service to homes
quickly)
• Labour – Availability of suitably skilled labour in the area
• Rents and taxes in the area – Businesses that don’t need to be near
customers can be located further away where rents are low
• Technology – Some services can be provided online which means
that the business won’t need to be located near customers.
• Personal preference of the owner
 Reasons to relocate abroad

• New markets overseas – Locate near customers in another country

(Reduce transport costs)
• Cheaper materials – Raw materials may be cheaper in another
country
• Unstable/expensive labour – A business (especially factories) may
want to relocate to another country with cheaper labour
• Rents and tax may be cheaper in another country
• Government grants for foreign businesses – The government may
give businesses grants(money) and reduce tax because they want the
business to relocate to their country
• Overcome trade and tariff barriers – Some countries may charge tax
on imported goods and businesses can overcome them by relocating
their factory to that country instead.
 Identify and classify costs

Fixed cost – A cost that does not change as the amount of products
produced or sold changes.
• Examples– rents such as office space or land, insurance and
employee salaries
• Fixed cost per product can be lowered by making more products.
Variable cost – A cost which changes as the amount of goods produced
or sold changes.
• Examples of variable cost – Materials used to produce
product, wages of production workers
Total cost – Fixed cost and variable costs are combined

• Average cost per product = Total cost / Number of products

produced
 Break-even Point

Break Even –
• method for finding out the minimum level of sales needed for a firm
to pay for its total cost.
• Level of output where total costs equal total revenue When Total
cost = Revenue, the business will break even.

• Break even: Level of output where total costs equal total revenue

• Break-Even Point = Fixed Cost / (Unit,Sales Price - Variable Unit

Cost)
• Contribution = sales price – variable cost
Example:
Neil has a protein supplement company that wants to introduce a new
flavour. Before launching this new flavour, he wants to determine how
it will impact his company’s finances. That’s why he decided to
calculate the break-even point to find out if it was worth the
investment.
• Fixed Costs = $2400
• Variable Costs = .50 (per item produced)
• Sales Price = $2

• Break-even Point = $2400/($2 – $.50) = 1600

• This means Neil has to sell 1600 items to reach the break-even
point.
It is calculated by dividing the fixed cost by the contribution margin.

• Break-Even Point (Units) = Fixed Costs ÷ Contribution Margin

Contribution Margin: Contribution margin is the difference between an

item’s variable cost and its selling cost.
•
• Contribution Margin = Price of Product – Variable Costs
Example:

• Fixed Costs = $2400

• Contribution Margin = 1.25 -$0.5 = 0.75
• Break-even Point = $2400/0.75 = $3200

This means Neil needs to generate revenue of $3200 by selling the

protein supplements to reach the break-even point.
 Margin of safety (Knowledge Only)

• Margin of safety represents the strength of the business. It enables a

business to know what is the exact amount it has gained or lost and
whether they are over or below the break-even point.
• In break-even analysis, margin of safety is the extent by which
actual or projected sales exceed the break-even sales

• Margin of safety = (current output - breakeven output)

• Margin of safety% = (current output - breakeven output)/current
output × 100
Advantages of break even charts
• Enables managers to see the level of production/sales needed to
break even
• Allows managers to read off expected profit/loss for different levels
of sales
• Impacts of business decisions can be seen (e.g. See effects
of lowering variable costs)
• Break even chart shows safety margin
Disadvantages
• The chart is merely a forecast for the future. There is no guarantee
that the figures will prove to be correct.
• Assumes all goods manufactured will be sold. This may not always
happen!
• Assumes costs and revenue are always drawn as straight lines. This
is unlikely to be the case.
•
 Economies and diseconomies of scale

• Economies of scale – Factors that lead to a reduction in average cost

as a business increase in size.
• Purchasing economies – Large firms able to negotiate cheaper prices
for raw materials (e.g. Coca-Cola buying large bulks of sugar from
supplier )
• Financial economies – Large firms able to negotiate cheaper finance
deals (e.g. lower bank loans because banks view large businesses as
less risky)
• Managerial economies – Large businesses can afford to hire
specialists to work for them. This increases efficiency.
• Technical economies – Use of specialist machinery to produce large
quantities of products. (Small businesses cannot afford this)
• Marketing economies – 1. Buying own vehicle to distribute product
2. Advertising costs can be spread over a large number of products.
Diseconomies of scale – As a business becomes too large, it becomes
less efficient leading to higher cost of production.

Poor communication –
• 1. Difficult to send and receive accurate messages in large
organisations.
• 2. Takes longer for decisions to be made
• 3. Top managers lose contact with customers.

• Low motivation – Workers begin to feel unimportant and not valued

by management. This leads to lower efficiency.