10 strategies to maximize corporate profits
Want to know about corporate profits and effective solutions to increase them? If yes, then you have on the right page. The deep-rooted belief in aiming for market share is the main and even more widespread managerial error on a global level. Anyone who loses market share or only plays with the thought of questioning them must face great difficulties in most companies. A top manager of a European car manufacturer in the high-end segment said: "Let's face it: marginality goals aren't taken seriously. If the margin falls by 20%, nothing happens. When our market share drops by only a fraction of a percentage point, layoffs start. Everyone here is aware of it. "
Instead of following the usual recipes for innovation, cost reduction and a change in the way in which products are positioned, I recommend starting an intervention aimed at increasing margins which is based on the following 10 points:
1) Create a realistic picture of margins, communicating them in the company.
Use data and facts to start an internal communication campaign aimed at collaborators to increase awareness that - but above all - because profits are far more important than market share.
2) Orient, the whole company towards profits and not towards market shares.
The primary goal of the company is to excite customers and generate income, not to destroy competitors. This is the essence of profit-oriented management. If a company manages to maintain its market share only if it detonates a price war, it will jeopardize the profitability of an entire sector for years to come.
3) Impose peaceful competition - no more war threats.
Learn from the General Motors (GM) case: a few years ago, GM started the most dramatic price war in history, offering its cars to the market with the same discounts given to employees. Such an action forced competitors Ford and Chrysler to react with a flurry of discounts. The effect of this price war was almost nil, in addition to having disintegrated the sector's margins - GM's market share even dropped. This was also one of the reasons why GM risked failing. Unsurprisingly, the most successful automakers recently argued: "we don't care much how many cars are produced by the competition."
4) Use internal data to discover the potential for increasing margins. You will be amazed at how many you will find.
Math-based decisions are always superior to those based on personal impressions and opinions. Unfortunately, most businesses decide on intuition even when they have a quantitative database. “We highlight this statement by Jeff Wilke, Amazon's customer service manager. The data (revenues, sales volumes, variable costs, etc.) are available, however often not analyzed as it should be. An exact analysis helps to make decisions based on facts and not on assumptions or sensations.
5) Carry out the market research necessary to understand the willingness to pay off your customers belonging to the different market segments in which you operate.
Internal data analysis is often not enough to test certain hypotheses; for example, why customers react in one way and not the other or how they would react to changes in product or service. These questions can only be resolved by providing answers based on studying customer preferences. Modern methods such as value measurement must be used to check the willingness to pay for its customers. It allows customers to understand the decision-making process also from a quantitative point of view, translating their preferences into Euros or Euro cents.
6) Manage your marketing mix based on profitability criteria, asking your marketing experts for quantitative justifications for their actions.
To generate profits in customer interaction, the combined strength of the entire marketing mix is needed: product, distribution, communication, and price. It is necessary to have the strength to question what has been done so far and be ready to replace consolidated activities with new concepts. Request a quantification of returns in terms of profit for marketing actions planned in the company.
7) Raise prices selectively, showing courage.
Instead of getting involved in battles with competitors, you have to invest your attention in selling your products at a high price. This is made possible, for example, by better product characteristics or better service. An excellent example of high customer value, but also for the courage to grasp this value through the price, is the Mach 3 razor by Gilette. It is 50% more expensive than the previous product and despite this, Gillette has gained the largest market share with this product since 1962.
8) Stop unnecessarily spoiling your customers.
Once you know what customers want and what they are willing to pay for it, you need to recalibrate your offer and get paid for product or service attributes that are perceived as superior. This happens too rarely. Many marketing managers and sellers accept the fact that the principle of making the customer happy, say their every action, including the price. A marketing director told me long ago that he could not understand why his company was at a loss. "We have the highest satisfaction rates in the sector, we offer high-end products and services, and the prices are very affordable." If your marketing strategy aims to go beyond your customers' expectations, but you are unable to generate profits, then you have taken the road to ruin.
9) Reward managers and sellers based on margins, not based on turnover or market share.
If you reward turnover or market shares, while at the same time granting great freedoms in managing the lever of discounts, you should not be surprised if the result is large volumes with low profits. It is better to reward those who generate the highest margins. Our experience teaches us that intervention in this regard generates, on average, an increase in margins of 2 to 6 percentage points. This happens very quickly.
10) make sure the market understands what you want: avoid misunderstandings.
Send clear signals to the market to communicate clearly, what you intend to do on the market, what you think is up to you, how much resistance you tolerate, and from where you will go on the counterattack. For example, IKEA is keen to point out that it wants to offer the most affordable prices on the market, without however exaggerating. This company has publicly announced that it will immediately lower its prices as soon as a competitor makes a cheaper offer. Due to this, IKEA manages to maintain a constant relationship between its prices and those of the competition. Public signs regarding the orientation regarding margins are constantly found in the newspapers. The managing director of AOL replied in an interview to the question of whether it intended to reduce prices as follows significantly:
If you put the focus on revenue growth, it may make sense. However, we are now focusing on margins, and our current growth is in line with this goal.
I conclude this reflection by stressing that when disruptive innovations in mature markets are lacking, the competitive strategy is to ensure stability and a reasonable balance. Abandoning the goal of growing in terms of market share is the first step to focus the company on generating profits. However, this also requires a lot of discipline, time, and dexterity, to achieve peaceful coexistence with the other players on the market, it is worth it.