13 Do you think that the best way for Nuwan to improve profit margins is to reduce costs? Justify your answer. [6]

[BASEL Moderator]

Nuwan is a sole trader. He has a specialist sports shop selling a wide range of cricket and tennis products. His 3 employees are trained to provide good customer service. Nuwan is pleased the economy is growing but he is worried that interest rates might be increased. He believes his small business has advantages compared to large retailers. Nuwan would like to improve profit margins and thinks the best way to do this is to reduce
costs.

13 Do you think that the best way for Nuwan to improve profit margins is to reduce costs? Justify your answer. [6]

Possible KN Points:
• Lower costs could mean poorer quality goods
• Higher prices
• Higher prices could help image of high quality
• of inventory