Different Objectives and Policies of Firms: Sales Maximisation

This section explores the objective of sales maximization for firms within the context of business objectives and the policies they might adopt to achieve this. We will examine the rationale behind this objective, the potential benefits and drawbacks, and the various policies firms can employ.

What is Sales Maximisation?

Sales maximization is a business objective where the primary goal is to achieve the highest possible level of sales revenue. This doesn't necessarily equate to the highest possible profit, but rather focuses on the volume of goods or services sold.

Why Might a Firm Pursue Sales Maximisation?

• Market Share Growth: Increasing sales often leads to a larger share of the market.
• Economies of Scale: Higher production volumes can lead to lower average costs per unit.
• Network Effects: In some industries, the value of a product or service increases with the number of users (e.g., social media).
• Brand Awareness: Increased sales can enhance brand visibility and recognition.
• Short-Term Profitability: In the short run, high sales can generate significant revenue, even if profits are not maximized.

Policies to Achieve Sales Maximisation

Firms can employ various policies to increase their sales volume. These can be broadly categorized as:

• Pricing Policies:
• Lower Prices: Reducing prices can attract more customers and increase sales volume (assuming demand is price elastic).
• Promotional Pricing: Offering temporary discounts or special deals to stimulate sales.
• Marketing and Advertising Policies:
• Advertising Campaigns: Creating and implementing advertising campaigns to reach a wider audience.
• Public Relations: Generating positive media coverage to enhance brand image and sales.
• Sales Promotion: Using techniques like contests, coupons, and loyalty programs to encourage purchases.
• Product Policies:
• Product Development: Introducing new products or improving existing ones to attract new customers and retain existing ones.
• Product Bundling: Offering multiple products together at a discounted price to increase the overall value proposition.
• Distribution Policies:
• Expanding Distribution Channels: Making products available through more outlets (e.g., online stores, retail partnerships).
• Improving Logistics: Ensuring efficient delivery and availability of products to customers.

Advantages of Sales Maximisation

Advantage	Explanation
Increased Market Share	Gaining a larger proportion of the total market.
Economies of Scale Potential	Higher production volumes can lead to lower average costs.
Enhanced Brand Awareness	Greater visibility and recognition for the brand.
Potential for Short-Term Profit Growth	High sales volume can generate substantial revenue.

Disadvantages of Sales Maximisation

While sales maximization can be beneficial, it also has potential drawbacks:

• Lower Profit Margins: Focusing solely on sales volume might lead to lower profit margins if costs are not carefully managed.
• Potential for Overproduction: If sales targets are not accurately forecast, firms may end up with excess inventory.
• Customer Dissatisfaction: Aggressive sales tactics can sometimes alienate customers.
• Resource Misallocation: Focusing on sales volume might divert resources from other important areas like research and development.

Relationship to Profit Maximisation

Sales maximization and profit maximization are not always aligned. A firm might achieve high sales volumes with relatively low profit margins. Profit maximization, on the other hand, aims to maximize the difference between total revenue and total costs. The optimal objective for a firm depends on its specific circumstances, industry, and long-term goals.