- avoiding price competition by moving into higher-margin products or services
Develop your self awareness around whether you are avoiding price competition by moving into higher-margin offerings (called Margin Retreat). It is a common response in business to increased competition, however it can “lead to corporate suicide”
When you do this, someone will pick up the business you’ve decided to leave, establishing a presence. Over time they continue picking off the parts of your business they want, driving you into smaller & smaller pockets of demand, however you are focused on higher & higher profits and do not notice. Seeing the higher margin business reinforces this decision.
As your company retreats, its costs & footprint likely stay the same (or rise), while you leave a bread crumb trail for competitors to expand up.
As competitors are now fulfilling your vacated ‘low margin’ positions, your revenue base stops growing. It may eventually shrink to the point it can no longer support your fixed costs around the operation. The typical levers managers pull in response are ‘restructuring’ and ‘cost cutting’ feeding more ‘reason’ to chase higher margin business, repeating the cycle, driving further shrinkage, which unchecked can spiral to extinction.
This idea has been around since 1990 and still worth being mindful of.
Do you have self awareness around where you may be doing this?
Post examples where you see this in comments