Why profits peak before sales

A question that intrigues marketers is that sales maximization does not mean profit maximization. One of the reasons of profit maturing even before sales is the competition—rather the intensity of inner-firm rivalry in a product marketing system. Most competition in all industry follow the imitation route and tend to draw away customers from the pioneer firm with an attraction of low price or better service ,better distribution network. or aggressive promotions. To fight back competition and retain market share, the pioneer firm i.e. the firm that launched the product first time in the market has to spend more money on media distribution channels and sales forces. The irony is that the firm has to retain its current price level or reduce it to remain competitive in the market place. In either case, the sales revenue generated is not enough to meet the operating costs .And hence profits start eroding. Another reason is shifting customer preferences and loyalties. As competition intensifies, better and more productive products are made available

Competition intensifies if rival companies offer better products in terms of quality. Examples of this are the watch manufacturing companies mainly Titan and HMT. Titan offered Quartz wrist watches at almost the same price as the mechanical watches marketed by HMT. HMT was a market leader. HMT believed that the Indian customer could not afford Quartz watches and did not make any efforts to introduce better quality Quartz watches. Indian customers extremely liked Quartz watches of Titan and HMT was forced out of the watch market. This shows that the customers do not have blind loyalty but believe in the quality of products.

It is for the reasons of competition and customer preferences that firms have to evolve strategies to reduce their break-even-time and also the introduction phase. The firm has to start early in product modifications and adapting to new technology if it has to maintain a steady flow of profits and growth rate. Most progressive and market driven firms use this route only and there one sees product life cycle curve as shown in the figure.

These modifications could be in packaging or in the product form like from solid to liquid (example, antacids which were originally available in liquid form are now available in tablet form ) or adding features or changing the distribution. The sale and profit of Pan Parag ,the leader in pan masala segments according to important sources, grew more than 25% when the firm started using sachets of different sizes to pack the product And the sales and profits further jumped as it introduced a new flavor for tobacco addicts called Pan Parag Zarda .Likewise, Rasna, a leader in soft drink concentrates found its sales and profits grow meteorically as it increased the number of flavors available to the customers and also extended its usage to other situations too Thus, a market driven firm anticipates competition and evolves strategy to preempt any competitive moves.