Economies of Scale

Economies of scale are a result of the larger a business gets the lower its average cost per unit is or the greater the benefit to the consumer. Economies of scale can be both internal and external and for PFSW it is only really internal economies of scale that really apply due to the niche market in which it operates. One EOS that can be generated as a result of the merger is marketing EOS. Marketing EOS is, as a business grows and its product range grows less marketing is needed to sell the products as it is the name or brand that is being marketed and the bigger the name or brand the less marketing is required to sell its items. PFSW can benefit from this as even though they sell different items they both sell to the same market “the goods are complementary” This means that people who buy sofas might also want to purchase tables and chairs. This means that any marketing that SW does PF would also benefit especially if they started selling each others furniture in there stores.

Another EOS that may be created due to the merger is financial EOS, this essentially is the bigger a business gets the easier it is to secure finance for different ventures. For a business like PFSW securing finance might be a very important factor as it is going to need to carry out lots of market research to ensure that the products are tailored to suit the customers needs, especially in highly variable taste and fashion market in which it operates. By creating financial economies of scale they can be safe in the knowledge that if they need finance to prototype a new piece then they can gain the funds quickly to shorten the lag time between conception and completion.

Purchasing economies of scale for PFSW is a very awkward situation as yes the company produce fine furniture but PF outsource its production whilst SW have an in-house production team. At present the suppliers of the timber for the sofas is unreliable, an obvious issue especially after looking