A Business Encyclopedia

Profit Strategy

Definition: The Profit Strategy is followed when an organization aims to maintain the profit by whatever means possible. Due to lower profitability, the firm may cut costs, reduce investments, raise prices, increase productivity or adopt any methods to overcome the temporary difficulties.

The profit strategy can be followed when the problems are temporary or short-lived and will go away with time. The problems could be the economic recession or inflation, industry downturn, worst market conditions, competitive pressure, government policies and the like. Till then, the firm adopts the artificial measures to tackle these problems and sustain the profitability of the firm.

If the problem persists for long, then profit strategy would only deteriorate the firm’s overall financial position. In the crisis, the companies may overcome the temporary difficulties by selling the assets such as land or building or setting off the losses of one division against the profits of another division. Also, the firms may offer the outsourcing facilities to those firms who are in need of it and can realize the temporary cash.

The profit strategy focuses on capitalizing the situation when the obsolete technology or the old technology is to be replaced with the new one. Here no new investment is made; the same technology is followed, at least partially with new technological domains.

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