Question

By referring to a minimum of three factors comprehensively discuss how firms in the service industry can achieve economies scale. include in your discussion the potential disadvantages of the mentioned factors

Answer 1

An increase in production scales can generate so-called "scale economies" economic efficiencies. An efficiency is the ability to perform a particular job with minimal time, effort and other performance-related costs. Scale economies typically exist when production or operating costs are fixed in order to reduce unit costs by increasing production volume. Because service industries typically entail providing unique goods in person, they may still achieve economies of scale in business operations as opposed to mass-production processes that duplicate products.

Contract Servicing

A contract service could be a business service offered to a number of companies, such as call center operators, that have a common need for the service. Through outsourcing these tasks, an organization may achieve economies of scale through increasing allocations of capital and human resources that would be needed if carried out using internal mechanisms. These shared services are a means of controlling staff and operating process-related costs. A major disadvantage of contract management is that the organization is giving up considerable control over the services that customers will receive. For example, when an IT company orders services for its clients from the internet, its own staff will no longer have routine troubleshooting. This loss of control can lead to the perception among customers of a lower level of customer service.

Advertising

The variable advertising and marketing costs were partly influenced by their size. Cost efficiencies that occur after being happy with the fixed cost of producing a print advertisement or a TV commercial. For example, if the total cost of a television commercial is $20,000 and it is set to run on a prime-time cable station 1,000 times, the advertiser's average cost for each commercial run is $20 each. If advertising costs $30,000 for running the same commercial 2,000 times, the average cost for each commercial run is $15 creating the advertiser's economies of scale.

Because the results are not immediate, it is a deferred revenue expenditure. When marketing consumes a significant portion of the organization's total budget. Therefore, spending a large sum in it does not necessarily produce immediate results, thus reducing its usefulness. The misrepresentation of facts regarding products and services is a major drawback in marketing. Advertisers usually misrepresent a product's unreal / false benefits and make tall claims to excite people to indulge in actions that lead to their benefit, but contrary to the self-interest of consumers.

Technoology

Use technological developments and integrated business solutions, service companies are able to build economies of scale by increasing their operating costs. Computer technology and Internet use, for instance, has generally made small businesses more effective in conducting business functions such as advertising, networking and collecting data.

Digital technology ensures that it is possible to collect and store large amounts of data. This can be personal information about individuals or organizations. Holding such data safe can be very difficult. Only one violation can mean large quantities of private information falling into the hands of criminals, terrorists, foreign enemies, or other malignant organizations.