Go on War- Not The Best Option

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 affect:

1.      Profit-price sensitivity:

·        3% price cut = 37% Revenue cut. (So, increase volume sale)

·        3% price cut = 12% volume increase. (Price elasticity 4:1, Norm=2:1)

     2. Price VS profitability:

·        1% improvement in price = 11.1% improvements in operating profits.

·        1% reducing of VC = 7.8% improvements in OP.

·        1% improvement in Volume=3.3% ……

·        1% improvement in FC = 2.3%……………

a.      Price cut short lived:

e.g., Book retailing, Airlines, food and lumber.

b.      Low price remembered:

e.g., Car sale rebate to customer.

d. Low price undermine Value and benefits:

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