13 Ways to Increase Your Profits - With Just a Few Numbers!

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Clearly, JetBlue poses a stiffer challenge to Southwest than the traditional airlines do. They can observe without engaging the competitor. That wait-and-watch strategy often works for companies that market products for people at the very top of the pyramid, such as wines, perfumes, and cosmetics. Bottled water is a superpremium product, and store brands serve consumers who rarely buy it. Its customers are typically people in their twenties and thirties, many of whom cannot afford the all-inclusive packages other cruise lines offer. Although easyCruise is doing well, incumbents such as Royal Caribbean and Cunard have left this new competitor alone rather than diverting resources to attack it.

That may be an exception to the rule. Most low-cost players alter customer behavior permanently, getting people to accept fewer benefits at lower prices. Moreover, low-price warriors are aided by the fact that consumers are becoming cynical about brands, better informed because of the Internet, and more open to value-for-money offers.

When market leaders finally acknowledge the threat from low-cost rivals, they usually try to match or beat their prices. Not only is pricing below cost illegal in many countries, including the United States, but also low-cost business models are designed to make money at low prices—a fact that executives tend to forget.

In a race to the bottom, the challengers always come out ahead of the incumbents. Internet bookings are more attractive to the leisure travelers who use low-cost carriers than to business travelers, who often fly to multiple destinations. Consequently, when traditional airlines set up Internet-based booking systems, the impact on their costs is limited. Third, most incumbents participate in industry-wide reservation systems such as Sabre, which robs them of control over some seats. Finally, the traditional airlines have set up networks of travel agents, which would rebel if the carriers made a complete shift to direct bookings.

For all those reasons, traditional carriers are unable to reduce their booking costs to the levels the discount airlines have achieved. Slashing prices usually lowers profits for all incumbents without driving the low-cost entrant out of business. I learned that firsthand while serving as a consultant to a European telecom-equipment provider that was competing against traditional rivals as well as a low-cost Asian competitor for a multimillion-dollar contract in Africa.

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Not surprisingly, the low-cost company won the contract. In addition, although the telecom giants would not have made profits on their lowest bids, the Asian contender seemed likely to do so. My research shows, however, that three conditions determine their efficacy. That approach works well because the Danish company also keeps introducing new products, cultivates an upscale brand image, and invests time and money in creating cool-looking retail outlets. Second, companies must be able to persuade consumers to pay for benefits. The ability to do so usually depends on the products they sell.

However, when the company deployed a similar strategy for Duracell batteries by emphasizing longer life, many consumers balked at paying higher prices after a certain point. Eventually, Gillette had to back away from this differentiation gambit.

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Many companies find it tough to persuade consumers to pay for additional benefits. A small premium for greater services or benefits is a powerful defense, as Target and Walgreens have shown. Target stocks inexpensive kitchenware and clothes developed by well-known designers such as Michael Graves and Isaac Mizrahi. It charges a bit more for products of better quality and design than those Wal-Mart sells.

In like vein, Walgreens emphasizes convenience by setting up its stores close to shopping centers and providing drive-through windows for pickups, promising short checkout lines, and offering easy navigation because of smart store layouts. Both Target and Walgreens have therefore managed to hold their own against Wal-Mart. All too often, though, incumbents incur huge costs in order to deliver benefits, forcing them to ask for price premiums so large that they drive away consumers. The third condition necessary for a successful differentiation strategy is simple: Companies must bring costs and benefits in line before implementing it.

That takes time. After years of restructuring, Hewlett-Packard may finally be catching up with Dell in the personal computer business. Consumers are shopping for HP computers once again because of such benefits as instant delivery and the ability to see, feel, and touch products in stores. Unless sizable numbers of consumers demand additional benefits, however, companies may have to yield some markets to the price warriors.

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Take the case of British Airways, which initially ignored low-cost rivals such as easyJet and Ryanair; then set up a low-cost carrier called Go, which it sold in to easyJet; and finally differentiated its services in several ways. BA now concentrates on long-haul flights, for which there are no low-cost carriers.

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In the short-haul market, the carrier has held on to some market share by emulating the best practices of low-cost rivals, such as persuading customers to use electronic tickets. On every flight, BA offers a small number of economy class seats at prices close to those that low-cost carriers charge.

RANT - Why You Need to Know Your Dang Numbers

Because of its stranglehold on landing slots at Heathrow, a convenient and popular airport, it still attracts some short-haul customers. Even so, BA has reduced capacity on several flights to destinations in Europe, effectively conceding victory to low-cost carriers. Strategies that help an established player coexist with low-cost rivals can work initially, but as consumers become more familiar with low-cost options, they tend to migrate to them.

Step 1: Implement an Accounting Process

That has left the traditional players scrapping with one another for a shrinking market, charging ever higher prices to fewer and fewer customers. These companies have to cope with smaller top lines even though they still have high overhead costs. That wreaks havoc on their bottom lines. When companies discover that the low-price customer segment is large, they often set up low-cost ventures themselves.

Because of their years of industry experience as well as their abundant resources, incumbents are often seduced into believing that they can easily replicate cut-price operations. Moreover, the business models of such rivals appear to be simpler than their own. All these second carriers have since been shut down or sold off, showing how tough it is for companies to use the dual strategy.

The low-cost operations offer customers a small number of products—term deposits, savings accounts, and insurance—through cost-efficient distribution channels such as the Internet. Since they reach out to consumers the flagship banks cannot afford to serve, the no-frills businesses protect the parents. The flagship operations combine the funds the subsidiaries raise with their own, which allows them to make investments cost-effectively.

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That approach helps both parent and subsidiary. A distinct brand helps communicate that fewer services go along with lower prices. By setting up an independent unit, an established company can create a start-up operation with structures, systems, staff, and values that are different from its own. However, as the case of the airlines shows, independent units are necessary but not sufficient for the success of a dual strategy.

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In turn, you can reclaim the VAT you pay on goods and services you buy. The size and nature of your business can change quickly. And for a range of reasons including increased exposure to risk you might want to set up your own limited company "incorporate" at a later stage. Providing someone else hasn't already registered the name, you should be able to use your sole trader name with Ltd added, of course.

Sole traders pay tax on the 31 January following the end of their tax year. Crucially, HMRC will request payments on account for the following year's estimated tax - on 31 January and 31 July each year.

kyfivulaqaly.tk That means, after your first year in business, your tax bill could be per cent of what you were expecting to pay, with another 50 per cent payable in July. When it comes time to pay HMRC, you'll be glad you put a few quid away each month. Being faced with a large tax bill you haven't saved for is a nightmare.

The Futility of Price Wars

Failing to pay your tax bill on time will result in penalty charges. Crucially, you've got be good at sales and marketing. If you don't make enough sales, your business will fail - simple. Paying an accountant to do your tax return can save you time, but you'll still have to maintain simple financial records.