Market Changes: Threats to Profitability

Discounts and offers, increase in the price level generally and the rise in operating costs due to new health and safety protocols are the main threats to the profitability of companies in this new commercial reality.

Friday, May 22, 2020

Given this context of economic and health crisis, which derives from the outbreak of covid-19 at the global level, Ariel Baños, a specialist in price management and founder of Fijaciondeprecios.com, explains what are the main threats that could affect the profitability levels of companies, and details some strategies that could be applied to mitigate the adverse effects.

Summary of threats and strategies:

Threats 
Strategies
Price war: The massive discounts and offers risk reaching the worst scenario: a price war, which destroys the margins of the companies in the sector, without substantial changes in the volumes sold.
Making our pricing strategy more flexible: The 'flex' modalities represent an opportunity. There will be those who will pay more, in unit terms, to ensure the flexibility and peace of mind that comes with buying in this way.
Inflationary impact: The need of governments to help the sectors affected by the pandemic has led to an expansive monetary policy in most parts of the world, which will result in a higher rate of inflation. In countries where inflation was already a problem, such as Argentina, the phenomenon will now have renewed strength.Monitor the costs quickly: It is important to advance the impact of inflation by quickly analyzing future or replacement costs. Historical costs, i.e. those reflected in invoices for previous purchases, lose their relevance. Inflation is a phenomenon that affects future profitability, therefore, we must manage looking forward, and not just using the rearview mirror.
Extra costs of doing business post covid-19: The 'new normal' involves adhering to rigorous health and safety protocols that generate higher costs.
Communicating differentials, the classic and the new: The new hygiene and safety protocols can represent an extra differential for our company. If we clearly transmit how we have prepared ourselves to ensure that all customers have a safe and pleasant shopping experience, we can transform an unpleasant additional cost into an advantage in the eyes of our customers.
See full article at Fijaciondeprecios.com (in Spanish).

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