19 May Margins don’t sustain
In a recent piece I had written about building brand because brand is a scale up tool.
But why do we need a scale up tool?
The reason clearly is to gain volumes.
Businesses usually don’t sustain on high margins.
High margin businesses are associated with temporary customers such as tourists and low volume businesses where status display is a primary proposition.
Margins are high in theme parks, hotels, travel, in special performance shows like the Broadway etc.
But margins get thinner in areas where one hopes to sustain a relationship with the same customer for several years together.
Services such as Public transportation, residential spaces, super markets, water, electricity etc.
Look at the contrasting margin strategies in hotels vs residential spaces, public transportation vs private holidays, TV programs vs Broadway plays, Private cab services vs Uber, Premium stores vs Amazon, Mercedes vs Maruti etc.
The IFA business too is designed to be a long term business relationship with customers.
Hence high margin isn’t tenable in this business.
The right strategy to build this kind of business is to focus on creating volumes.
Hence the need for ‘scale up tools’ like technology and branding are key pillars for the IFA business.