What is a defensive strategy that a company should have to protect its profits?

A pronounced competitive advantage or market presence is a crucial defensive strategy for a company aiming to protect its profits. When a company has a strong competitive edge, it typically means that it can differentiate itself from its competitors through unique products, superior services, or innovative technology. This differentiation often allows the company to command higher prices, maintain customer loyalty, and secure a greater market share, all of which directly contribute to robust profit margins.

Moreover, a strong market presence can result in increased brand recognition, which can deter new competitors from entering the market. Businesses with significant market power are often capable of weathering economic downturns better than those without, as they are seen as more reliable or preferable options by consumers. This strategy not only fortifies the company’s financial standing but also builds a sustainable business model that can adapt to market changes.

On the other hand, other strategies mentioned, such as highly volatile pricing strategies, can lead to uncertainty and may alienate customers, while minimal engagement in market activities can leave a company vulnerable to competition. Similarly, while strong contractual agreements may provide some level of protection, they do not inherently create a competitive advantage in the market. Thus, having a pronounced competitive advantage is a more effective defensive strategy for protecting profits.