I think that when it comes to owning a business and making choices as a partnership for your company can be hard. However, you have to consider what is going to bring in the most revenue in the end.
They both have their pros and cons when it comes to changing the name. Let’s first take a look at changing the name to “Lawn and Tree Care”. Being a customer. I am going to judge a business on their name. So if I saw that their name was “Summer Lawn Care”, I am going to assume they cut grass and do landscaping. This may cause me to go somewhere else when it comes to tree cutting services. This could easily drive business away. Especially since smaller businesses rely heavily on word of mouth to gain customers. This could hurt their business tremendously. Whereas if their name and is Lawn and TreeCare I am going to see that in fact they do help with tree removal. However, the cons is having to essentially trash everything marketing wise that you have paid for. Such as the business cards, ads, etc. However, there may be a way to use those in a way for the new business. Such as getting an new ad like “We used to be Summer lawn Care, but now we can do so much more!” In this decision the relevant costs are ones that they are going to spend to get new ads, business cards, and new signs. The irrelevant Costs are going to be the ones that were in the past, ones that they can’t consider as they wouldn’t affect this. This would include all the business cards vehicle paint, signage, and ads as these are now considered “Sunk Costs” (Douglas, 2012).
Now lets take a look at the other end of it, in the scenario of not changing the name. This of course would save them a great deal of money as they wouldn’t have to spend money, or Time, on new marketing items. However, would this stop them from making additional funds. That would be the downfall in this is that they may lose customers due to the name being confusing. This is what I would consider the irrelevant costs, all the business they could have had with changing the name. Where the relevant costs would be the money they save in keeping the business. However, could you consider the business they are losing irrelevant and relevant costs as I feel they could almost be both.
Overall, I would agree with changing the name as to me, it would be worth the extra marketing and new cards and ads costs. As it would allow people to fully understand what it is they do, help with the word of mouth advertising, and give them more business in the long run. This would allow for the most revenue overtime thus more profit in the long run.
In evaluating the decision to change the name of the company, the relevant and irrelevant costs need to be considered. Within the relevant and irrelevant costs are implicit costs, explicit costs, sunk costs, unavoidable costs, and incremental costs.
Relevant costs are the costs that are relative to the decision being considered, in this case changing the name of the company from Summer Lawn Care to Lawn and Tree Care (Douglas, 2012). Relevant costs are also referred to as incremental costs. Incremental costs are the costs for a current or future period based on a decision to be made (Douglas, 2012). In this scenario, the relevant, or incremental, costs to be considered would include legal fees associated with changing the name, costs of changing business signage on vehicles, costs for business cards and other miscellaneous office expenses, and future advertising costs.
Irrelevant costs are costs that are not relevant to a decision that is going to be made. Irrelevant costs include both unavoidable and sunk costs. Unavoidable costs are contractually obligated to be paid and include management salaries and equipment and facility lease fees (Douglas, 2012). Sunk costs are costs that have been previously incurred and cannot be recovered (Douglas, 2012). In this scenario, examples of sunk costs would include the costs for business cards, vehicle paint, signage, and ads in Yellow Pages. A significant difference between sunk costs and unavoidable costs is that sunk costs have already been paid and cannot be recovered while unavoidable costs have not necessarily been paid yet but will be sometime in the future (Douglas, 2012). Sunk costs and unavoidable costs are both considered explicit costs. Explicit costs are actual “out of pocket” payments that have been paid to another individual or business for products or services received (Douglas, 2012).
The implicit cost is a cost that reflects a lost opportunity when using a particular resource for another purpose (Douglas, 2012). An example of implicit cost would be the interest lost on money in a savings account if that money was taken out of the bank and used on capital improvements for a company. In this scenario, the lost opportunity of the resources used to pay for the company’s name change would be the implicit cost to the company.
Douglas, E. (2012). Managerial Economics (1st ed.) [Electronic version]. Retrieved from https://content.ashford.edu/