"Why are there both large and small firms in a particular industry"

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Introduction

For my economics coursework I will investigate the reasons behind having large and small firms in a particular industry and how the small firm manages to survive in competition. I will find out how the firms maximize profits in comparison to each other and the number of customers loyal to their chosen firm. Small firms tend to survive by providing friendly staff with professional appearances, the ability to cater for specialized goods with a wide variety of goods and services etc. The best way for me to show how both firms survive, is to relate this into a particular industry. On Banstead high street, there are two firms of the same Pharmaceutical industry, Boots being the large firm and Victoria Chemist being the small firms with this firm being the only chain.

Methodology

Cheap University Papers on "Why are there both large and small firms in a particular industry"

Aims and hypotheses

· I want to find out how Victoria Chemist survives even though it is fierce competition with Boots. How? To do this I will interview the managers trying to find out what they have and do to keep customers loyal and to make sure they return. I predict that the main reason Victoria Chemist can survive is due to their personal service and their general attitude to going out of their way to help their customer as much as possible. Boots I believe will focus on their wide range of goods and offers. Prescriptions will also play a large part in bringing in income. There will be times when Victoria Chemist doesn't have medicine and they will send them to Boots, and vice versa.

· I want to find out what influences the customers to come to either Boots or Victoria Chemist. How? I will have questionnaires that I will use to ask customers questions on their choice of Pharmacies. I believe boots will have customers coming to their firm because of their respect name and their advertisements on cheaper prices.

· Customer counts would also be appropriate to show us how many people go to their pharmacies in a certain amount of time. If we had customer counts for ten minutes, we can calculate roughly how many people they have in a day. I would expect Victoria Chemist to be open till later to make as much money as possible but still they will have a smaller customer count.

Theory A firm is an organization that brings together the factors of production land, labour, capital and entrepreneurship to produce wide varieties of goods and services for consumption. I think Boots would probably focus on making money and selling ordinary goods in wide ranges, but Victoria Chemist would specialize goods as well as wide ranges of products. Firms primarily aim to make profit, but large and small firms go about it different ways. I think Boots will aim to maximize profits by invoking as many people as possible by advertising on billboard, television etc. As Boots will have more income than Victoria Chemist, they can use economies of scale to lower prices, which would increase demand and hopefully increase revenue

As you can see, the price has decreased causing and expansion in demand. So from this you can see that supply is very price elastic, meaning, a small change in price equals a large change in demand. The prices have become elastic due to economies of scale, and by decreasing prices, Boots can draw customers away from Victoria Chemist and to them. This is known as Predatory pricing. This works when the larger firm can drop prices to force out the smaller businesses within their market in an attempt to drive out the competition.

Large firms are able to have lower prices using economies of scale. They have many ways of cost savings mainly buying in bulk for discount and storing. Firms lose total revenue when paying staff, and the best way to decrease staff wages is to increase their market into developing countries. This way they can gain entries into foreign markets and have cheap labour, with people who have the will to work. They can also attract customers by advertising qualities, goods and services etc. Unfortunately there are downsides to having large firms Internal diseconomies of scale. When large firms are split into departments, there are many different managers who have many different dis-agreements. Also workers become bored with the same job and become less cooperative which decreases the standard of goods being produced.

Victoria Chemist does not have enough income to advertise and use and economies of scale. Many small firms only survive by loyal customers. For example, small hairdresser firms would only rely on loyal customers to have their haircut at this place only. They provide convenience, friendliness and use effective demand to satisfy consumer needs and wants. There are many advantages of being small over being large. Victoria Chemist features no internal diseconomies of scale and is run with one or two owners without any digressions. This means the total revenue goes directly to the owner.

Visual presentation of the number of small and large firms in Banstead

Analysing the reasons for the existence of both firms in the industry.

Boots is a well-known pharmacy that has chains all around the country and has recently grown to open optometry firms as well. When interviewing the manageress of Boots, she said, "Boots is a large firm and has grown to what it is due to its trusted name, customers valuing the quality and level of service and strategic planning has enabled us to plan for the future and invest for the years come." Boots aims to keep quality levels as high as possible, attract customers and mainly to make as much profit as possible by achieve average lower costs. Victoria chemist is a small independent chemist, which has many different values when in comparison to rivals Boots. When talking to the manager he quoted, "We rarely have one off customers because they see Boots opposite and as it has a trusted name, we are rejected. Our customers and nursing homes keep us in business. I present my staff professionally to make a good impression on the customers. We have loyal customers and have to try as hard as possible to keep them. One customer loss is a huge loss for us, but to large firms it matters not. We provide a wide variety of specialized goods and services and go out of our way to please the customer even if they want their prescription delivered or want an oxygen canister fitted inside their house. If we keep our customers satisfied they will become regular returners "

When questioning the customers of both firms, here are the results of loyal customers

Boots

As you can see, there is more one timer than there are loyal customers. This in my view reflects on their aims and customer service qualities. As I only interviewed a certain amount of people and not all of them, my results are slightly inaccurate. If these results were for all of Boot's customers, it would suggest that Boots do not have customer care if only 40% of their customers are loyal

Victoria Chemist

As you can see, with a 100% of loyal customers, Victoria Chemist must specialize on effective demand to satisfy needs and wants for people to be returning here instead of the large firm across the road.

Also, when asking questions about what attracted the customers to the retailers, the responses concerning Boots were all to do with attraction and advertisement, whereas Victoria Chemist were mainly concerning convenience and the way they were always able to order goods specially for the customers. Victoria Chemist had no problem with going out of their way to help customers and have high personal services for customers.

Any firm if having enough income wasn't a problem would want to grow in size. I believe Boots has grown in size primarily to make as much profit as possible, and being large has its advantages large firms are able to undergo many different forms of internal economies of scale financial, marketing, risk-bearing and specialized, which are ways of cutting costs, for example buying in bulk and having specialized trained staff to help customers.

· Opening times table

· Rota

· Prescriptions, convenience, passing over of customers

· Elderly and delivery

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