Swati CA

Swati_CA column in The Hindu Business Line

Saturday, December 29, 2007

Thin margins on large volumes could be a recipe for disaster


Ever wondered how the retail stores offer super discounts? If you are like everybody else, you buy the tangiest pickle jar (yes, the large one) and simply love your store that offers you great deals everyday. But if you were someone like me, then you would stop for a moment to figure out how you can have two jars at the price of just one! They must be crazy or else. Brace yourself for the two most important words in business: margin and volume.

Most businesses buy/procure raw materials at cheap prices and then offer it to you after adding a margin (which includes cost of storing the product, packaging, manpower, profits, etc.) The best, and arguably the biggest, businesses boast both margins and volumes. But increasingly, some businesses are growing large by just doing one side of the business well. And that’s where the danger lies for the small guy.

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2 Comments:

  • At 8:41 PM, Blogger Swati CA said…

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    My answer is a big NO. In today’s world, most of lenders bat for the big corporates only. While wafer-thin margins, made by big outlets, will rule the world for many years, smaller players will be able to make an impact only through monopoly in certain goods or services.

    Big companies try to use the services of small players, who are new to business and are prepared for higher risk, to save on cost. While the bolder players are able to get a better price for their service, the smaller players will have to be smart in handling the issue.

    Krishnamorthy, Mangalore

     
  • At 8:42 PM, Blogger Swati CA said…

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    The small guy can survive. He has to do what the big guys can’t. For example, even with the advent of organised retailers, the kiranawalas are surviving. This is because they know their customers well and can provide customised services to them.

    But the small guy should always be vigilant. He ought to frequently conduct some sort of a scenario planning. And the best way to prepare for a worst case scenario is to avoid it. He ought to think, “What if I can’t keep my large customer? Then what will I do?” This will make him look for alternative customers, so that he doesn’t lose his bargaining power.

    We must remember that things usually don’t work out exactly the way we want them to. So we should always have backup plans in case the original plan fails.

    Soni Achuthan, Alappuzha

     

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