How to Increase Profits in the Long Run

Table of Contents

A. Actions to Increase Market Share in Existing Segments

Increase your market share only if the segment is one of the main ones for you, and the market is attractive. In certain segments, you must actively seek to “sell” market share in order to pay for an increase in market share in key segments. Be selective. In case you are looking for a dedicated agency to create a business module for you to increase your growth, you can use Bsbcon Business plans.

A1. Reduce prices

Prices Should Be Reduced If:

The market or an important and profitable part of it is price sensitive;

You can be sure that competitors will not, in turn, reduce prices for a long time or you will have lower costs in servicing this segment than competitors.

In the latter case, it will not be so important whether competitors will lower prices, because sooner or later they will have to raise them again or leave the segment (unless the segment is so important to them that they will be ready to incur losses in order to maintain market share ).

Price sensitivity varies widely from market to market, but it is difficult to find segments that, in the long run, may not succumb to the attempts of producers to attract them with high value in exchange for paying an additional amount of money.

Reducing prices is not a very popular tactic, but it is almost always effective in seeking to increase market share. The payback may not be very quick: price declines usually result in a significant reduction in profits over the first three or five years.

But there are also several examples of consistently pursued price reduction policies that did not have such an impact and made businesses much more costly in the long run.

Reducing prices should lead to the formation of the following effective cycle:

Increasing market share;
Immediately following pressure on domestic costs caused by lower profits;
Higher sales, leading to a reduction in unit costs in the near future;
An even greater increase in market share;
Pressure on competitors to either go out of business or move to higher price segments;
Further increase in market share; further reduction in unit cost, etc.

The only case when a price cut is detrimental to the initiator and everyone else is when there is significant excess capacity in the business, and there are also non-economic barriers to exit. In all other cases, this is a very good step.

A2. Create Additional Properties, Value, Service and Quality

This tactic should be accompanied by a reduction in production costs and should not be seen as an alternative. I must say that this is a much more popular tactic than price reduction, and those who succeed by following it, as a rule, are much less.

This is not because this tactic is bad, but simply because it is much more difficult to implement. However, those firms that have been successful for more or less a long period of time almost always try to provide their customers with something more – more than they provided a year ago and more than their competitors.

Bsbcon Business plans