Low prices are no guarantee of profits

February 4, 2007 at 5:03 am Leave a comment

 Whenever I ask first-time entrepreneurs what’s going to make their businesses different from the competition, many of them say, “We’re going to be cheaper.”

They think they can succeed with a strategy of undercutting their competition’s prices for products or services. Low prices, they assume, will generate sufficient sales to more than make up for smaller profits. “What I lose in margins, I’ll make up in volume.”After all, they see tons of advertisements for big companies that only seem to emphasize low prices. And they know that they comparison shop before they make purchases. So they think that a strategy of low prices is the path to success. But what’s good strategy for a few giant retailers or airlines is extremely risky business for most small companies — and most big companies as well.

Competing on price is risky. Low prices mean narrow profit margins, and that means less cash. With a small financial cushion, you’re vulnerable with every slight increase in costs. The landlord raises your rent 5 percent? That may be your entire year’s profit.

See Full Article http://www.theithacajournal.com/apps/pbcs.dll/article?AID=/20070116/LIFESTYLE06/701160306


Entry filed under: Internet Startup.

Vioplex.Com – data recovery company = $1 Million a Year Entrepreneur is a Lice Exterminator

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About Biz News

My Name is Bisi and this is my blog This blog features stories that I have read that I think are interesting . I usually bookmark the stories that I find interesting but they are getting too many . I have decided to catalog and share them on this site . I am not really promoting the site so you might have accidentally stumbled on it . Thanks for visiting .
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