Any business that adopts a sacrosanct or overly rigid approach to its margin or mark-up is a business that's potentially heading for trouble. 

Look at Coca-Cola.  In the soft drinks market, its position and brand strength have, until recently, appeared unassailable.  But, as distinct from its brand equity, what was its "margin equity"? 

The brand was all powerful, but its margin was arguably too high for its own good, and has let the operator Cott into the market place in a price-led strategy. 

If this could happen to Coca-Cola, it could happen to anyone.  What value is there in your existing margin?  How sustainable is the margin in your business?  What strategic, "margin equity" does it possess, or is it liable to damaging attack?  Is your short term margin putting your long term business at risk, or conversely not maximising your current trading potential?  At what level in your organisation are margin decisions finally taken?  Does your organisation even properly understand what its margin is? 

When Jet and a handful of small relatively unknown petrol retailers were the only filling stations offering discounted petrol, the oil companies seemingly ignored the threat of discount pricing. 

Now that the supermarket brands have achieved almost 20 per cent of the total market, in less than 10 years, it appears that the oil companies cannot decide whether to "beat it" or "join it".  Tesco is now running its own tanker fleet, and has opened its own high street forecourts - at a fuel price which undercuts the full retail price of the majors. 

To match the hypermarkets now would mean the oil companies losing millions in margin in the short term - but may well be the only way for them to hang on to their heavily invested brand positions. 

Could a more flexible attitude to pricing and margin a few years ago have prevented the supermarkets from even considering entering the fuel business? 

There is an old saying that when it comes to margins you can't bank percentages only cash.  Yet how many businesses are still managed financially on the basis of a rigid percentage margin target, with any deviation being regarded as serious management failure?  The consequences are well understood, but often ignored. 

There is a major high street retailer who used to issue a margin wheel to its buyers to calculate the selling price of any product using a prescribed mark-up on the cost price.  This fixed margin meant little or no thought went into whether an item could in fact be sold for more than the required mark-up, or alternatively should be stocked but at a lower than standard margin as part of an "essentials" range. 

How many staff are really aware of the cash margin (as distinct from the percentage margin) of each product so they can adjust their selling actioning accordingly?  Most staff will instantly assume the higher the price, the higher the margin. 
 
So what's the right margin for your business?  Surely it should be the highest you can achieve in your marketplace?  Or should it? 

In a period of weak demand and rising costs, any (already efficient) business is faced with two simple choices in competing.  If they are ruled by percentage margin targets they can: 

a) Reduce quality, in order to maintain margins at the same selling prices.  Customers notice a deterioration in quality, and switch to a cheaper supplier. 

b) Maintain quality, and therefore increase prices in order to maintain margins on the increased cost base.  The risk for all but the strongest brands is that the supplier gets a reputation for high pricing, and the customer decides to trial (and maybe switch to) a cheaper product. 

c) Maintain quality, and hold or even reduce prices, with a real sacrifice to margin.  The outcome in the short term may appear suicidal, but may be the best means of retaining a long-term customer relationship for more favourable times. 

Many good restaurants recognise the need for flexibility in margins, particularly on wines, frequently adopting a more realistic fixed cash mark-up per bottle rather than percentage margin.  The John Lewis Partnership price claim "never knowingly undersold" - will undoubtedly mean it is selling items at greatly reduced margins -but the slogan helps secure the long term value of their margin by creating consumer confidence in their whole pricing policy. 

This trade-off in short-term margin in favour of long term customer loyalty has delivered consistently impressive results throughout the recession, but has been emulated by relatively few others. 

Jealously guarding the margin can be the one thing that actually acclerates the decline of profitability.  What's needed is: 

Greater understanding of absolute vs ratio margins across entire product or range portfolio; 

Extensive communication of the true cash contribution of differing products; 

Greater flexibility in the balance of need between centrally vs locally controlled pricing and margin decisions recognising there are times when any sale is better than no sale; 

Increased awareness of the need to act in a way which protects long term sustainable margins, not just achieving immediate short-term targets; 

Greater overriding concern to retain and develop the relationship with existing customers even if this means sacrificing margin as this is fundamentally more beneficial than the cost of regaining lapsed customers or attracting new business when old customers vote with their feet.