The profitability trap: When market share grows but margins disappear
- MCC Consulting
- hace 3 horas
- 3 Min. de lectura
Many international companies entering Latin America proudly report early wins: fast distribution expansion, increasing sell-in volumes, and growing market share. From HQ dashboards, the expansion appears successful.
Yet behind these numbers, a more dangerous reality often unfolds what we call: the Profitability trap.
The Profitability trap occurs when companies capture market share while silently bleeding margin due to uncontrolled variable costs, rebates, discounts, and commercial concessions. Growth looks healthy on the surface, but the business underneath becomes structurally unprofitable.
In Latin America, this trap is one of the most common (and least visible) reasons why expansions eventually stall, reset, or exit the market altogether.
Volume growth vs. economic reality
Global HQs often prioritize early traction:
Number of points of sale
Units shipped
Market share rankings
Visibility in key retailers
These indicators matter, yes, but they don't reflect economic health (unfortunately!)
In LATAM, market share is frequently bought through:
Aggressive rebates
Retail-specific discounts
Extended payment terms
Marketing contributions
Sell-out guarantees
Each concession may seem reasonable in isolation. But together, they quietly erode margins beyond recovery.
There is a global electronics brand that achieved double-digit market share in under 18 months across multiple LATAM countries. Internally, the expansion was celebrated. Two years later, the region was restructured after profitability never materialized, despite continued volume growth.
The issue was not demand, but uncontrolled execution economics.
Costs that scale faster than revenue
One of the most dangerous characteristics of the 'Profitability Trap' is that variable costs increase as volume increases.
Common examples include:
Retail rebates tied to sell-in targets
Promotional funding per unit sold
Currency-driven price protection
Logistics surcharges
Inventory financing costs
Because these costs sit across different functions (sales, finance, marketing, logistics) they are rarely viewed holistically (This is why it's a trap!)
HQ sees top line growth; local teams see shrinking contribution margins; and by the time the gap is visible at regional level, the commercial model is already broken.
Rebates and discounts: When incentives become obligations
In LATAM, however, temporary rebates quickly become permanent expectations.
Retailers and distributors build them into their economics. Removing them later is perceived not as optimization, but as a price increase, or a breach of trust.
When growth becomes addictive: Psychological bias at HQ
Once market share milestones are reached, internal expectations change. Questions shift from:
“Is this profitable?”
to:
“Why isn’t this growing faster?”
Local teams are incentivized to defend share at all costs. Margin discipline becomes secondary. Profitability discussions are postponed to a future “scale phase” that never fully arrives.
This dynamic is particularly dangerous in competitive categories such as:
Consumer electronics
Appliances
FMCG
Industrial equipment
By the time HQ demands profitability, the market has been trained to expect concessions.
How to escape the 'Profitability Trap'
Companies that scale profitably in Latin America do a few things differently:
They define contribution margin floors before launch
They control variable costs as aggressively as pricing
They standardize rebate logic across markets
They empower local teams within clear economic boundaries
They treat profitability as a design constraint, not a phase-two goal
Most importantly, they understand that market share without margin is not strategy, it is exposure.
Final thoughts
Growth is addictive, but in Latin America, it is also dangerous when not controlled.
The Profitability Trap is one of the most common reasons why global companies scale fast, celebrate early, and then quietly retreat. Capturing market share is easy when concessions are unlimited. Building a profitable, resilient business requires discipline from day one.
The difference between the two is execution, not ambition.
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