Price war and poem

Md Rezaul Karim By Md Rezaul Karim, 4th Sep 2012 | Follow this author | RSS Feed
Posted in Wikinut>Business>Sales & Marketing

Low price could get you flock of customers, but in the long run it is not good for the business.

Hide behind the price


You cannot hide in business; it never means you win if you lose prices!
You can shout, your can fight, but you can’t be on war!
It doesn’t matter if you like the music of Manowar or Gwar!
One naughty boy would ask, what are you talking about pal?
I say businesses.
In business you can compete
Compete with your feat-
Never ever try to cut your coat to suit others!
Never slash your profit or earning margin
Then, it means you are going down and down.
The logic behind not to slash prices or go on competition in lowering the prices could be summed up as follows:

The reasons for price wars are detrimental:
McKinsey & Company’s research report (2463 firms).
a. Price-Profit-volume affects:
1. Profit-price sensitivity:
We must remember that if we have got 3% price cut, it means we are having 37% Revenue cut. So, the pressure on sales force will be increased tremendously. More volume sales needed. Secondly, if you consider 3% price cut it would require 12% or equal more volume increase. In simple words Price elasticity 4:1 against the normal time 2:1.

2. Price VS profitability:
Price cut not only affect the revenue and volume sales rather it kisses the profitability too. For instance, 1% improvement in price would mean 11.1% improvements in operating profits. Otherwise, 1% reducing of Variable Cost would result in 7.8% improvements in Operating Profits. On the otherhand 1% improvement in Volume sales would turn in 3.3% operating profits, similarly 1% improvement in Fixed Cost would mean 2.3% rise in operating profits.

a. Price cut short lived:
Particularly in the business like Book retailing, Airlines, food and lumber price cut cannot go for a long shot.
b. Low price remembered:
People usually remember the less quoted price that was made earlier. So, for durable products like Car sale rebate to customer is damaging for businesses.

d. Low price undermine Value and benefits:
Obviously less value less priced, best quality cannot be sold cheaply. So, the product differentiation would automatically tag with the price of premium rate.

Tags

Competence, Competition, Competition In Online Earnings, Competitive Sport, Price Cut, Pricing, Pricing Strategy

Meet the author

author avatar Md Rezaul Karim
I am a teacher engaged with the Southern University Bangladesh. I Like to use my spare time by writing and reading. I take it as a fun and source of inspiration in pursuing knowledge.

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Comments

author avatar Carol
4th Sep 2012 (#)

A great poem with a subtle meaning. Well done!

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author avatar Md Rezaul Karim
5th Sep 2012 (#)

Thank you Carol for your comments.

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author avatar Retired
4th Sep 2012 (#)

A good read Md - thank you for sharing!

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author avatar Md Rezaul Karim
5th Sep 2012 (#)

I appreciate you are visiting me. Thank yo Adam.

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author avatar Mark Gordon Brown
4th Sep 2012 (#)

People prefer shopping at lower priced stores, it may be good for the customer but not so good for the greedy store owner.

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author avatar Md Rezaul Karim
5th Sep 2012 (#)

Dilemma is the adjustment among the three- competitors, customers and Business sustainability! A big challenge indeed. Thanks anyway Mark.

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author avatar Judy Ellen
4th Sep 2012 (#)

This is very sound advice for business owners and it gives us (the consumer) a glimpse of what the business has to go through when they drop their prices. Thank you for sharing your wisdom with us!!

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author avatar Md Rezaul Karim
5th Sep 2012 (#)

Balancing optimally among all the parties is the task of managers! That's why they are paid for! Thank you Judy.

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author avatar cnwriter..carolina
5th Sep 2012 (#)

words of wisdom indeed Md...thank you

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author avatar Md Rezaul Karim
6th Sep 2012 (#)

Thank you cnwriter, your appreciations are my rewards.

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author avatar Sivaramakrishnan A
6th Sep 2012 (#)

Price war ends with all round loss and that includes the customer! Nice take, Karim - siva

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author avatar Md Rezaul Karim
7th Sep 2012 (#)

Thank you Sivaji for your kind remarks.

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author avatar Md Rezaul Karim
31st May 2013 (#)

Thanks..

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