Yaneek Page | Profit maximisation can hurt business
In economic theory, the main objectives of a firm are to maximise profits and deliver the greatest possible returns to its principals and investors.
In simple terms, the goal of many companies that appear to subscribe to this principle is to earn as much income as possible from their assets and outputs while spending as little as possible on inputs.
However, profit maximisation can backfire, severely damaging the business's brand and threatening its future profitability and viability.
Recently, I experienced a classic example of how myopic and problematic this severe profit focus can be.
My family and I spent a few days at a local resort that promotes as its main attraction a water adventure park. An advertisement sponsored by the hotel with a picturesque image of the waterpark with a special offer for locals enticed me to make a reservation immediately.
When we entered the park on the first day after checking in at the hotel, it was overflowing with guests. Every lounge chair was occupied, the pool was crammed, and there were long lines and wait times to get refreshments, and several of the menu items ran out of stock.
EVEN LONGER LINES
The lines to access the slides were even longer, and there were scores of teenagers who literally squeezed past us to get ahead of the line, boring in front of adults who were waiting their turn with younger children in tow. I had to grip my younger son to ensure that he didn't slip and fall on the wet steps amid the pushing.
It was so uncomfortable that we left the park shortly after with the hope that the following day would be better.
To our dismay, the next day was even worse as within minutes of the waterpark opening, it was again so overflowing with people that we left after a short time.
When I relayed my experience to the waterpark supervisor, she explained that the hotel itself was booked out and operating at full capacity, however, in addition, they had busloads of local children who were there on day passes and also cruise ship passengers who had paid between US$60 and US$90 per person to access the facilities.
From a purely economic perspective, the resort would appear to be thriving. They were operating at 100 per cent room capacity and further maximising the facilities by selling day passes to hundreds of locals and cruise ship passengers.
However, what management may be failing to see is that profit maximisation is taking place at the expense of guest comfort and experience, which is the worst blunder any business can make.
Businesses that are captivated by the pure-profit paradigm may sometimes lose sight of the bigger purpose of business, which legendary management consultant Peter Drucker says is "to create and keep a customer".
When the pursuit of profit maximisation threatens its brand promise, it will only be a matter of time before its reputation is diminished, especially in this digital age where people can self-publish their reviews to tens of thousands, if not millions of people, online within minutes.
A business's brand promise is a commitment or statement to its customers about the features, benefits, and experiences they can expect from it, which not only differentiates it from
its competitors, but also communicates the business's core values, mission, and purpose.
In the example above, the resort was able to attract many customers with its brand promise which I believed to be an idyllic all-inclusive getaway, where my family would have fun and create lasting memories. Unfortunately, their efforts to maximise profits exceeded their vigour to make guests happy, and if they continue on that path, it is unlikely that guests would keep going back.