The world’s leading pricing consultant Simon-Kucher & Partners has since 2011 been regularly conducting its Global Pricing Study to determine trends and challenges in company pricing. In this year’s study, executives and managers from over 2,000 companies form the most varied of sectors such as banks, consumer goods, retail and electronics, from over 40 countries, were surveyed in early 2016. We present here the most important findings from the Global Pricing Study 2016.
Study finding #1: Exploit new sources of profit
Frighteningly high pricing pressure
82% of surveyed companies consider themselves facing ever higher pricing pressure. The causes, above all, are found in ever tougher competition with low-price vendors, increased bargaining power amongst customers and increasing price transparency due to the Internet.
49% of companies claimed to be embroiled in a price war. One in five surveyed reports of price wars in their sector, in which they themselves are not involved. Furthermore, only six out of ten companies were able to improve their margins. This is mainly due to companies having inadequate pricing strategies and planned price increases thus being set too low. From this also, companies cannot balance their cost increases through essential price increases and thus see themselves faced with sinking profit margins.
A passing on of cost increases is not adequately sufficient
Although 77% of surveyed companies could implement their planned price increases, those increases were insufficient for 52% of the companies to offset rising costs. Consequently, the return on sales for 2016 declined by 0.7 percentage points.
Particularly interesting is that 87% see a significant need for improvement to the shaping of their pricing strategy and the associated software used for price optimisation.
Utilise new products as an opportunity
To escape from rising pricing pressure, companies see the best prospects in developing new products, as well as increasing communication value. Growth instead of cost reductions is the motto.
Study finding #2: Invest in pricing strategy und tools for price optimisation on the Internet
The most successful companies in the Global Pricing Study 2016 have invested significantly in their price management, as well as the associated tools, and are therefore a step ahead of their competition. They register 27% higher profits, 39% higher price increases and have a 33% higher share in successful innovations. These companies distinguish themselves from competitors particularly by having already firmly established the concept of price management in their organisation and processes. Pricing is preferably introduced before and during the innovation process and seen as a significant success and profit factor upon product launch.
“The price is and remains the most important profit driver. When it comes to costs, most companies have reached the end of the flagpole. Pricing pressure increases at the same time. It is only logical here that the successful companies invest intensively in professional price management. They otherwise run the risk of an inability to impose any more profitable prices on the market – and that has devastating effects on their profits”. Dr. Georg Tacke, CEO Simon-Kucher & Partners
Companies who have implemented pricing strategies and tools suited to their needs have a deeper understanding of pricing decisions and have simultaneously established a greater product transparency in the innovation process. Additionally, entrepreneurs know which prices to set for new products and how they can attain their elevated pricing goals. Tools for price optimisation, such as the blackbee Retail Intelligence Suite help retailers better understand the value of their products, communicate this simultaneously to their customers and to achieve the desired pricing goals on the market.
Study finding #3: Prepare yourself for digitisation to fully exploit potentials
Although 60% of those surveyed see digitisation as the most important opportunity for increasing sales, retailing in particular sees a risk here to prices and margins. New customers should be generated above all through digital channels and personalised marketing. Since these measures do not fully consider prices and margins, the full potential of digitisation can thus also not be exhausted.
Global Pricing Study: New marketing and sales models have the highest profit potential
10% of those surveyed see digitisation, its resulting proximity to customers and an understanding for customer requirements as a major profit potential. To exploit this completely, the following measures, according to those companies, are being planned:
- Investments in product design
- Products tailored to customer requirements
- Adjustment of marketing models
- Introduction of new sales models
To escape pricing pressure and increase profits, Simon-Kucher & Partners recommend seven immediate measures:
- Develop a price management tailored to your needs.
- Award pricing the highest priority! Test price reductions and increases in detail.
- Place regular decisions on pricing strategy on the executive agenda.
- Develop an in-house pricing department and establish responsibilities in price management. Do not shy away from investments!
- Set yourself and your company ambitious pricing goals that are also attainable.
- Avoid too highly-set volume and market share targets, since these can often be triggers for price wars.
- Test whether your business model is equipped for digitisation.
Pricing, now as ever, is the most important profit lever for companies. An intelligent price-setting helps retailers to remain successful and future-oriented in the market. But the findings of the Global Pricing Study make clear: Many companies still treat pricing too neglectfully, although the greatest potential in margin increase lies in price. Our blackbee Retail Intelligence Suite helps you to increase margins and also optimise profit.
Test blackbee now and improve your competitive position in online retail.