Sales and profit growth strategy

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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.

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