Price-taker companies have to adapt to the prices in the market or lose their customers. The situation arises since the businesses sell goods or services that have a wide array of alternatives. In this manner, if the firm sets the price lower than what everyone else is offering, he or she will not meet demand ( Jiang & Srinivasan, 2016 ). Similarly, if they decide to set a higher price, no one will be interested in their offering. Therefore, the solution for these companies to remain profitable is ensuring that they find strategies to reduce their production costs ( Nojavan, Mohammadi-Ivatloo, & Zare, 2015 ). Thus, they will operate in a state where the marginal cost will be equal to the marginal revenue. Such a state will ensure that a business keeps running and make profits when market conditions are in its favor.
The first strategy to remain profitable entails operating close to suppliers to reduce the cost of sourcing for raw materials. Any price-taker firm should ensure that it has a close touch with the suppliers of the ingredients required for the goods they produce. This situation may involve having a warehouse near regions where raw materials are produced ( Nojavan, Mohammadi-Ivatloo, & Zare, 2015 ). In this case, the firm can organize its own transport and get the resources at a lower cost. In the end, the business will eliminate costly transportation and storage costs, which will impact negatively on its revenue margins. Consequently, the firm can sell at the same price as others in the market but will incur less production cost thus improving its profits.
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The second strategy involves using innovative technologies to reduce the cost of operations. Instead of hiring many employees in the various departments of the business, some areas can be substituted with machines and software which are cost-effective. For instance, in the areas of ordering, billing, and inventory management, there are various computer software which can be used to help the business operate effectively ( Jiang & Srinivasan, 2016 ). Such systems are accurate, work on bulky information, and store data in an organized way. In this regard, the company will avoid losses that are likely caused by human error and spend less on paying staff.
The third option to improve profits is product differentiation. This strategy may be challenging to implement since the products and services offered in the given perfect market are all the same, and the consumers pay the same prices due to the similarity the offerings. Hover, instituting minor changes in the way the products are packed, delivered, or ordered can go a long way to create brand loyalty ( Jiang & Srinivasan, 2016 ). In this case, the customers will willingly go for these differentiated products even though there are other options going for the same price.
Finally, discounts and offers will improve profits for the business. More often, the consumers will assign a certain sense of value to products that are packaged differently from others in the market ( Jiang & Srinivasan, 2016 ). Achieving this feat requires tactics such as discounts and offers. For instance, when the business offers a discount on goods that are bundled up, the consumers will end up buying more products at a relatively lower price. This aspect may help the business get rid of old stock and get raw materials which are being offered at lower prices. The process will ensure that the next round of sales is profitable ( Nojavan, Mohammadi-Ivatloo, & Zare, 2015 ). In the same vein, the business can have product offers in one segment and slightly increase prices for other sections. In this manner, the customers will be drawn by the offers and end up buying the other products as well.
In conclusion, attaining profits in a perfect market situation will require a business to rethink its production and operation processes. This aspect will enable the management to select areas where they can reduce the cost of production and operations. Such tactics include being close to suppliers, product differentiation, efficient technologies, and having product discounts and offers. These aspects ensure that the marginal cost never falls below the marginal revenue f the company.
References
Nojavan, S., Mohammadi-Ivatloo, B., & Zare, K. (2015). Robust optimization based price-taker retailer bidding strategy under pool market price uncertainty. International Journal of Electrical Power & Energy Systems , 73 , 955-963.
Jiang, B., & Srinivasan, K. (2016). Pricing and persuasive advertising in a differentiated market. Marketing Letters , 27 (3), 579-588.
