Aaron Kular Unit 1 – The Business Environment M2
M2 – Compare the challenges to selected business activities within a selected organisation,
in two different economic environments.
As businesses operate within economic environments, any challenges resulting from the
environment such as inflation, unemployment and economic growth will impact upon a
business. This creates challenges for businesses as it causes figures such as sales and growth
to change.
Inflation occurs when there is increased money supply, which reduces the purchasing power
of each unit of money. This is true for the UK as there has been an increase in the money
supply which has resulted in an increase in inflation to 2.6%.
Within the UK economy, inflation is a challenge that faces Kellogg’s. As there is less
disposable income for consumers, Kellogg’s must respond in various ways in order to
maintain customers, which maintains profits which mitigates the effects of inflation. This is
because, as customers have less money they are no longer able to afford premium, more
expensive products and may chose cheaper products.
In order to do reduce the effects of inflation, Kellogg's must try to increase the demand for
products. A method Kellogg’s uses to do this is by extensively advertising to consumer which
results in increased demand. During inflation, Kellogg’s increased their advertising budget
allowing them to more frequently and effectively communicate with consumers. The
increased exposure Kellogg's as a brand had on customers meant they were more familiar
with the brand so they were more likely to purchase their products.
Another way Kellogg’s maintains demand is for them to reduce the retail price of their
goods. This allows more consumers to afford premium products during a financial crisis, but
it negatively affects the profits of Kellogg’s. Kellogg’s is directly affected during inflation as
they will have increased cost of sales as the price of their raw materials increases. As it is not
ideal for Kellogg’s to increase the retail price of goods during a negative financial factor such
as inflation, Kellogg’s may be influenced to reduce the cost of manufacturing and similar
processes during the sale of the cereal products. A cost saving measure used by Kellogg’s
was when they introduced their K-lean manufacturing process which improved efficiency by
“driving waste reduction, optimizing manufacturing operations, upholding exemplary quality
and safety standards and maintaining high organizational effectiveness”
(Annualreport.kelloggcompany, 2009). This implemented savings “as high as 4% of cost of
goods in 2009” (Annualreport.kelloggcompany, 2009).
Another challenge associated with inflation on Kellogg’s is that they must increase wages, as
they will be forced to by the trade union to allow employees to maintain their standard of
living. Kellogg’s response to this may be to increase redundancies to reduce the number of
employees working for the organisation. This allows Kellogg’s to maintain their expenses on
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M2 – Compare the challenges to selected business activities within a selected organisation,
in two different economic environments.
As businesses operate within economic environments, any challenges resulting from the
environment such as inflation, unemployment and economic growth will impact upon a
business. This creates challenges for businesses as it causes figures such as sales and growth
to change.
Inflation occurs when there is increased money supply, which reduces the purchasing power
of each unit of money. This is true for the UK as there has been an increase in the money
supply which has resulted in an increase in inflation to 2.6%.
Within the UK economy, inflation is a challenge that faces Kellogg’s. As there is less
disposable income for consumers, Kellogg’s must respond in various ways in order to
maintain customers, which maintains profits which mitigates the effects of inflation. This is
because, as customers have less money they are no longer able to afford premium, more
expensive products and may chose cheaper products.
In order to do reduce the effects of inflation, Kellogg's must try to increase the demand for
products. A method Kellogg’s uses to do this is by extensively advertising to consumer which
results in increased demand. During inflation, Kellogg’s increased their advertising budget
allowing them to more frequently and effectively communicate with consumers. The
increased exposure Kellogg's as a brand had on customers meant they were more familiar
with the brand so they were more likely to purchase their products.
Another way Kellogg’s maintains demand is for them to reduce the retail price of their
goods. This allows more consumers to afford premium products during a financial crisis, but
it negatively affects the profits of Kellogg’s. Kellogg’s is directly affected during inflation as
they will have increased cost of sales as the price of their raw materials increases. As it is not
ideal for Kellogg’s to increase the retail price of goods during a negative financial factor such
as inflation, Kellogg’s may be influenced to reduce the cost of manufacturing and similar
processes during the sale of the cereal products. A cost saving measure used by Kellogg’s
was when they introduced their K-lean manufacturing process which improved efficiency by
“driving waste reduction, optimizing manufacturing operations, upholding exemplary quality
and safety standards and maintaining high organizational effectiveness”
(Annualreport.kelloggcompany, 2009). This implemented savings “as high as 4% of cost of
goods in 2009” (Annualreport.kelloggcompany, 2009).
Another challenge associated with inflation on Kellogg’s is that they must increase wages, as
they will be forced to by the trade union to allow employees to maintain their standard of
living. Kellogg’s response to this may be to increase redundancies to reduce the number of
employees working for the organisation. This allows Kellogg’s to maintain their expenses on
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