Most businesses have concepts of ‘volume of sales’ (number of sales transactions in a given period) and of the (average) ‘value of a sale’.
Looking across the broad sweep of businesses in any area (whether geographical area or business sector), clearly there will be businesses whose services or products have a high cost to the purchaser, others with a medium cost to their services and yet more with a low cost. Equally, there are businesses currently with a low volume of sales, others with a medium volume and others with a high volume of sales. (This might be for a number of reasons, including the length the business has been trading, the skills of the people who run the business and so on―the reasons need not detain us here.)
We can describe these permutations as ‘high volume/medium price’, ‘low volume/low price’ and so on.
The model says that the most efficient permutations of price and volume are:
high volume/low price, low volume/high price.
All other permutations require more effort and resources to generate a given amount of income. And, without sufficient resources and effort, there will be a tendency for the business to slide towards low volume/low price.
…to be continued
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