Prices and digitalization: “Racing a carriage against a car”

Bonn, October 18, 2016 – There's one thing the majority of companies worldwide can agree on: digitalization is revolutionizing the economy. Nine out of ten companies (93 percent) consider digitalization relevant for their business. Yet exactly how they can make the most of the digital revolution's opportunities is a question often met with perplexity. This is a key finding of the Global Pricing Study 2016*, conducted by Simon-Kucher & Partners, in which approximately 2,200 managers from companies in more than 40 countries and a wide variety of industries participated. "Pricing plays a key role when it comes to digitalization within a company, but is often overlooked. Without professional pricing, even the best digitalization strategies won't pay off", explains Dr. Georg Tacke, CEO at Simon-Kucher & Partners.

Optimistic outlook in the tourism industry, pessimistic in the retail sector

The mega trend is mainly met with optimism, since 73 percent of companies see digitalization as an opportunity, particularly respondents from the tourism, software, transport, logistics and insurance industries. Nevertheless the results are alarming: 27 percent of the surveyed companies consider the digital revolution to be a risk. This pessimism is mainly present in the retail, paper and packaging and automotive industries. Furthermore, every fifth company within this 27 percent is uncertain which measures are necessary to overcome the potential risks of digitalization. This number decreases to every tenth company among the optimists.

Moreover, six out of ten participants expect digitalization to have a positive impact on their sales. Still, almost just as many fear that the mega trend will have a negative impact on prices and margins.

Pricing tools: Companies can prepare themselves for digitalization

Success here is no accident. However, most companies either completely neglect the topic of price management in their digitalization strategy, or are simply unable to handle the issue. Still, prices and margins don’t necessarily need to suffer from the effects of digitalization. In fact, companies that prepare can expect the exact opposite outcome. "The problem is that when it comes to pricing, many companies are still working with outdated tools. It's similar to racing a carriage against a car", says Tacke. The Global Pricing Study's 'best' companies prove that tailor-made tools are definitely worthwhile, with 13 percent of companies belonging to this group. By investing in their price management, they are already in a much better position than their competitors. Their profits, as measured by EBITDA margins, are approximately a quarter higher (27 percent) than the profits of the 'rest'.

Focus on online retail: There's no more time for experimenting!

Particularly with online retail, it can already be seen which companies have found the right answers to digitalization. Ever-improving algorithms, whereby customers not only receive individualized offers but also personalized prices, maximize the likelihood of a purchase. Even though almost half of companies (49 percent) in the retail sector use pricing software, 65 percent also believe they should invest more in this area. "Many companies are trying to overcome the challenges of digitalization using yesterday's tools. The fact is that e-commerce has long seen the end of its trial period! Companies need to keep up with the times when it comes to online pricing", explains Tacke.

Are price models digital-ready?

Tacke recommends every company to check whether its price models are ready for the digital age. Especially when it comes to dynamic pricing, price differentiation and innovative price models, digitalization offers an array of opportunities. "Here we are still at the start of a rapid development", says the pricing expert.

A summary of the study is available upon request.

*About the Global Pricing Study 2016: A total of 2,186 participants, of which 38 percent are C-levels, from companies of 25 industries and over 40 countries across the Americas, Asia-Pacific and Europe, took part in an online study conducted by Simon-Kucher & Partners in the spring of 2016. Respondents answered questions on their pricing strategies, price pressure, and the competitive environment. The study takes place every two years and is the only one of its kind.

 

Simon-Kucher & Partners, Strategy & Marketing Consultants:
Simon-Kucher & Partners is a global consulting firm with 930 professionals in 33 offices worldwide focusing on TopLine Power®. Founded in 1985, the company has more than 30 years of experience providing strategy and marketing consulting, and is regarded as the world’s leading pricing advisor.

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For further information please contact:
Nora Neuwinger (Public Relations Manager)
tel.: +49 228 9843 372
fax: +49 228 9843 140
e-mail: Nora.Neuwinger@simon-kucher.com