Strategies to increase profit and avoid business loss.
To thrive in today's marketplace, companies must continue the process of discovery, leveraging new strategies and advances in technology. You must understand the fundamentals that enable companies to take the plunge and remain competitive. The following are the strategies any company can do to win the competitors and achieve its goals in strategies for wealth management.
1 DIVERSIFICATION.
Diversification is one of the types of internal growth strategies. It is changing product or business line. In this case, the business enters into a new business service or product which is an extension of an existing activity or there could be a substantial difference in skill, technology and knowledge. There are certain reasons for companies to go for diversification. The reasons are as below :
a. Spreading of risk: -
Diversification enables to spread of the risk. In this the business operates in different markets wherein one market business suffers a loss, that can be compensated in another market and the levels of profit will be maintained.
b. Improves corporate image:-
Corporate image is creating a mental picture of the company in the people's minds. Through the diversification company as changes products and knowledge and gives better quality products and services which creates a positive impact on people's minds.
c.Face competition effectively:-
Due to the diversification company introduce a wide range of products and services. This enables the company to maintain its sales in the market.
d. Utilization of resources:-
Diversification enables the company to use the resources optimally as it has excess capacity manufacturing. If facilities managerial manpower and other resources to production dept and other activities.
e. Economies of scale:-
Diversification brings economies of scale, especially in the area of diversification. The company can combine the distribution of the old products as well as new products with the help of the same distribution chain.
f. Customer satisfaction: -
When the company entered into the new business it assured to give qualitative products and good services. This leads to customer satisfaction.
g. Synergistic advantages: -
Synergistic advantages are those which are gained by putting little changes by combining two or more to improve the same product or process which are related to old product and gain new products. This will be easily attained in diversification.
• TYPES OF DIVERSIFICATION:
There are four major types of diversification knows as:
(I). Vertical diversification: -
Vertical diversification is the extension of current business activities. Such extension is of two types known as:
(a). Backward diversification:-
It is a diversification where the company moves one step back from the current line of business, for example, the cupboard manufacturing unit enters into its raw material supply unit (Color and Hardware)
(b). Forward diversification: -
In this case, the company enters into an activity that is an extension of its current business for example cloth manufacturers enter into garment manufacturing from there it prospers in strategies for wealth management.
(II). Horizontal diversification: -
In this case for strategies of wealth management the company enters into a new business that is very closely related to the existing line of business and it is with the help of the same technology and the market. For example, gent’s garments manufacture enter into ladies garments manufacturing.
(III). Concentric diversification: -
This new business is linked to the existing business which is indirectly related. For example, a car seller may start a finance company to increase his sale.
(IV)Conglomerate diversification:-
In this type of diversification, the attempt is made to diversify the present market or product into a new product in the market. There is no linkage between an old and a new business. For example, a Transport operator entered into furniture manufacturer
2FUNCTIONAL STRATEGIES
Functional strategies for wealth management are derived from business and corporate strategies and are implemented through functional implementations. Functional strategy deals with relatively restricted plans designed to achieve objectives in a specific functional area, allocation of resources among different operations within that functional area and coordination among different functional areas for optimal contribution to the achievement of business or corporate level objectives. The key task of strategy implementation is to align the activities or capabilities of the organization with its strategies. For this, there is a need to have coordination among the strategies at different levels.
The operational strategy mainly includes production strategies, marketing strategies, financial strategies and human resources strategies.
A.PRODUCTION STRATEGIES.
Production strategies are mainly aimed at improving quality, increasing quantity and reducing the cost of production. For this purpose, there is a need to consider the following activities.
1) Production capacity:
An organization must decide its production capacity. This is subjective and depends on the demand for the product in the market and fluctuations in the market due to competition, recession, the boom in the market etc. however some organization decides based on their sales forecast. Nowdays some firms are producing some part of the production and partially they purchase from others. So with the consideration of all these aspects, the business should fix its production capacity.
2) Location and size of plants:
While deciding on the location the business considers certain points from the view of place safety and security, local conditions availability of raw materials nearness to market law and order situation at the place, availability of infrastructure facilities as well as a competent workforce. The size of the plant will be decided based on projected demand for products and the dependency of the firm on other firms which are supplying partially manufactured goods.
1. Technology:-
It refers to the know-how and equipment, machinery, tools etc. while deciding on production these things are to be considered as their effects are there on capital manpower, and cost of production.
2. Research and development:-
R&D helps to improve the quality reduces the cost of production etc. so it should be considered from the investment point of view, its processes and centralized or decentralized nature.
3. Quality of the product:-
Production strategies are concerned with the quality of the product. Quality means the fitness of the product. And this differs from customer to customer. Here the firm needs to know its customer first and then decide on the quality of the product that a customer may find suitable or not. They may like its quality, price etc, and then go for production.
3. MARKETING STRATEGIES.
Marketing refers to a thorough understanding of customers that how he desires the product (from the viewpoint of their perceptions of the products.) It is an important aspect of any organization as its success is mostly attributed to the performance of the marketing. Therefore every business needs to frame suitable marketing strategies in respect of the following.
1. Product strategy:-
product means anything available for the consumption purpose of the people. And generally, they desire quality products. Therefore, under this strategy, the business unit takes decisions regarding product line/mix. If it found that there is no need to think of diversified products then it continues stressing core products. Then business unit may consider the development of new products. Here the business unit decides about the development of new products or modifications of the product to face the competition in the market and to meet the needs of the customer. And under the same strategy businesses may think of other product policies like product packaging, branding, or positioning.
2. Pricing strategy:-
Price is a very sensitive part of marketing. With a minor price change, there would be a greater setback to sales. Therefore the business unit considers various sub-variables of the price element such as credit period, discount, competitor’s price list etc. and fixes the price to the product. After that business unit should consider the different methods of charging a price to a product and as per the customer’s convenience and market situation the price should be charged to the product. Besides this, there will be other strategies, consider by business units are as under:
a)Skimming pricing strategy:-
In this case, at the initial stage of the product, the prices of products are very high and as the sales volume increases in that proportion, the price of the product will be reduced. This type of pricing is adopted for recovering heavy expenditure incurred on the part of research and development by earning huge profits.
b) Penetration pricing strategy:- In, this case low prices are charged at the initial period of launch of the product and as there is a good response to the product and its sales increase in that proportion the price of the product will be reduced. This is done to capture the market.
c)Other pricing strategies:-
In this case, the business used to adopt other methods of charging a price to the products like-
i) Leader pricing method
ii) Cost plus method.
iii) Psychological pricing method.
3. Distribution strategy:-
Distribution means the supply of goods from manufacturer to customer. If the supply of products is good, regular, on-time then only here will be smooth and efficient functioning of marketing. From this point, the marketer takes decisions on channels of distribution, area of distribution, dealer’s network, and policies regarding dealer’s efficiency like incentives, commission rates etc.
Promotion means communication or supply of information to the customer about products and services. This firm uses various means o tools of promotion like advertising, sales promotion, publicity, personal selling and so on. Here marketer’s responsibility is to see every mean keenly and then design strategies regarding each respective mean. For example in the case of advertising he should have thought from the point of its budget, media selection strategies, media scheduling strategies etc. in the same way as other strategies.
4. FINANCIAL STRATEGY.
Finance is the backbone of every business unit. Therefore the financial management of the business units deals with planning, raising, utilizing and controlling functions of the organization’s financial resources to attain its goal. Generally, financial policies are designed from the viewpoint of:
a.Mobilization of funds:-
The funds are required to undertake various business activities. There a decision has to be taken in regards to the purchase of fixed assets as well as current assets requirement and any other long their investment. While taking decisions on fixed assets it is mostly taken based on:
b. Nature of business:-
It means whether it is a manufacturing unit or a trading unit. If it is manufacturing it requires more amount and vice versa.
b. Size of business unit: -
That is a large size or small size. If it is large then more capital and if it is small then it requires less amount.
c. Technology used: -
If less developed technology is used the more amount and labour intensive firms require fewer amounts.
d.Scope of business activities: -
That is more goods are produced than the amount required and only one or two products are produced the low amount is required. In the case of current assets or working capital, the decision is to be taken on the ground of-
i.Nature of business:-
Here the firms are using expensive raw materials that may require more funds and vice-versa.
ii. Operating cycle:-
The firms having a long operating cycle and selling goods on a credit basis require more capital and vice versa.
iii. Growth and expansion of business:-
If the firms are growing rapidly then require more funds.
iv. Seasonality of operations:-
The products of the firm are seasonal then during the period, only the fund requirement will be more and in the slack season, there is no more fund requirement.
e. Capital structure:-
Capital structure refers to the composition of a firm’s long term funds comprising equity, preference and long term loans. There should be a proper ratio between owned and borrowed funds. It is to be noted that one should not place too much emphasis on borrowed funds because it puts a burden on the company’s financial aspects as there should be regular payment of interest and repayment of loans. Also, too much emphasis on equity capital is not good as it dilutes the equity capital. In the out, there should be a balance between borrowed and owned capital.
f.Depreciation policies:-
Depreciation is an activity that provides compensation for the risk of wear and tear. There are two methods of depreciation known as i) fixed-line method and
ii) Reducing balance method.
Under the company law both methods are accepted but for income tax purposes, in certain cases written down method is accepted and in some cases, the straight right-line method is accepted.
g. Dividend strategy:-
The dividend is a return on investment given to the investors. No doubt every investor wants to have a good rate of return on their investment and the companies are willing to do so. Here as per financial strategy company should think of its effects on financial aspects and then go for either a liberal dividend policy or a conservative dividend policy.
h.Retained earnings strategy:-
It means keeping earned income with the company itself. Generally whatever amount of profit is earned is to be spent (used/utilized) for different purposes by the company. Here the company should have to think of what portion of the profit is to be kept for future activities like:
i. Future needs of funds for development.
ii. To provide stable dividends to the shareholders or
iii. To meet the restrictions of financial institutions etc
In strategies of wealth management, various strategies are used to enhance business growth and profit enhancement. The above strategies can highly be used for wealth management. Thanks much for your time to follow through with our articles.
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