Sales and profit growth strategy
In this strategy price is fixed at the lowest possible level, at the same time, assuming that the demand for the product in question is sensitive to the price (that is, the cheaper the more sales and more customers).
Low price allows to ensure sales growth, cost reduction in the long term and contribute to an increase in profit.
Objectives
Objectives related to profit and sales growth strategy are: increasing the volume of sales and market coverage, and at the same time achieving a certain amount of profit in the short or long time. They can be generally achieved by enlarging the attractiveness of the product price in new market segments.
Effects of application
Low prices allow to increase the market share and profit growth. Managers seek to cut costs, as well as use of low profit margins, by offering a wide range of products to consumers who prefer lower prices. Through these prices businesses can increase the volume of its sales and profit.
Application of low prices can be used in manufacturing companies which have large spare capacity. Low prices allow to increase sales and expand into new markets, which in turn can increase profits. However, the use of low prices could trigger a price war, a downward spiral of price reductions by competitors and as a result of the bankruptcy of some of them or lower profits.
Another equally important goal of enterprise is getting the desired rate of return from invested capital. Managers aiming for this goal use formula for fixing the so-called base price, which cover the average total cost of production and sales of the product and planned rate of return on investment.
See also:
Examples of Sales and profit growth strategy
- Bundling - Bundling is a marketing strategy in which a business combines two or more products or services into one package and sells it at a single price. This strategy can be used to increase sales and revenue, as it encourages customers to buy multiple items from the same company. For example, a retail store may bundle a shirt and a pair of pants together, offering a discounted price for both items when compared to buying them separately.
- Discounts - Businesses often use discounts as a way to increase sales and profits. Discounts can be used to entice new customers or reward loyal ones. For example, a retail store may offer a discount to customers who purchase a certain amount of merchandise or who sign up for a loyalty program. This strategy can be used to encourage customers to buy more items and keep coming back.
- Upselling - Upselling is a sales strategy in which a business tries to get customers to buy more expensive items or add additional services or products to their purchase. For example, a restaurant may offer customers the option to upgrade their meal to a larger size or add a side dish or dessert. This strategy can be used to increase sales and profits by getting customers to spend more money.
- Cross-selling - Cross-selling is a sales strategy in which a business tries to get customers to buy related products or services. For example, a car dealership may try to get customers to buy additional accessories or services, such as an extended warranty or car detailing services. This strategy can be used to increase sales and profits by getting customers to buy more items from the same business.
Advantages of Sales and profit growth strategy
The advantages of a sales and profit growth strategy that involves setting prices at the lowest possible level include:
- Increased customer demand due to the low prices, which can lead to increased sales and revenue.
- The ability to attract customers who are price-sensitive, as they will be more likely to purchase the product due to its lower cost.
- Increased market share due to the low prices, as customers will be more likely to choose the product over competitors who are charging higher prices.
- An increased profit margin, as the lower prices will result in higher sales volumes, allowing for more profits to be made.
- The potential to increase the brand's visibility, as customers will be more likely to remember the product due to its low price.
Limitations of Sales and profit growth strategy
A sales and profit growth strategy has the following limitations:
- Firstly, it is difficult for businesses to accurately predict the level of demand for their products; as such, setting prices too low could lead to a loss of profits.
- Secondly, low prices may indicate poor quality to potential customers, which could lead to reduced sales.
- Thirdly, there may be competition from other businesses offering similar products at lower prices, making it difficult to maintain sales.
- Lastly, setting prices too low could lead to a decrease in profit margins, potentially resulting in a decrease in overall profits.
In order to achieve sales and profit growth, there are several strategies that can be employed. These include:
- Increasing the product range: By introducing additional products and services, a business can reach new customers and keep existing customers engaged. This is especially important in markets where customers are looking for a variety of choices.
- Enhancing customer service: Offering superior customer service can help businesses build customer loyalty and increase revenue. This includes offering personalized assistance, resolving customer complaints quickly and efficiently, and responding to customer inquiries quickly.
- Improving the marketing strategy: An effective marketing strategy can help businesses reach a wider audience and attract new customers. This can include creating targeted marketing campaigns, leveraging social media, and optimizing online content.
- Utilizing technology: Technology can be used to automate processes and streamline operations, allowing businesses to become more efficient and productive. This can include integrating customer relationship management (CRM) systems, automating marketing campaigns, and leveraging artificial intelligence (AI) to improve customer service.
In summary, increasing the product range, enhancing customer service, improving the marketing strategy, and leveraging technology are all strategies that can be used to achieve sales and profit growth. By implementing the right strategies, businesses can increase their sales and profits and remain competitive in the market.
| Sales and profit growth strategy — recommended articles |
| Skimming pricing strategy — Competitive Pricing — Captive pricing — Price and non-price competition — Pricing strategy — Preventive pricing strategy — Product line pricing — Trade allowance — Low cost strategy |
References
- Over, A. M. S. S. G. (2014). A Model for Predicting Advertising Quality As a Key to Driving Sales Growth. Journal of Advertising Research.
