74 percent of all new products in Asia-Pacific flop
More than ever, price pressure and price wars are placing the world economy under immense strain. Companies in Asia-Pacific are less and less able to achieve the prices they aim for. Only one-fourth of planned price increases actually get enforced in the regional markets – less than in other geographies. These are the results of the Global Pricing Study 2014*, conducted for the third time by the global strategy consultancy Simon-Kucher & Partners in collaboration with the independent Professional Pricing Society (PPS). Approximately 1,600 managers from more than 40 countries across Asia-Pacific, the Americas and Europe have been questioned about their business environment, pricing practices and performance.
One of the best ways to overcome price pressure is through new products, as 76 percent of the responding managers from Asia-Pacific confirm. Still, almost three-fourths of all new products miss their profit targets. "This is alarming news for companies," comments Dr. Georg Tacke, Simon-Kucher's CEO, "but nothing that can't be solved. Price pressure, price wars and competition shouldn't hold them back from achieving the prices they want. It's definitely feasible." The study confirms this. Of the global respondents of the study, one group rose above the others. This group, the “Best”, meet their price targets for new products and continue to do so in the long term because they factor pricing and marketing into the innovation process from the very beginning. The "Rest" should follow suit if they want to be competitive in the future.
Problems in the innovation process
Across the globe, companies are suffering from the rough economic climate: 85 percent of study respondents from the Asia-Pacific region say they are suffering from strong price pressure. What's more, even 72 percent – compared to 58 percent of global respondents – indicate that they are currently involved in a price war. Instead of trying to find out where things may have gone wrong internally, 81 percent point the finger at their competitors. Either way, the respondents are not able to enforce their prices. For instance, regional companies that wanted to raise their prices by four percent only managed one percent.
The situation not only looks bleak in Asia-Pacific. The capability to enforce price increases is decreasing worldwide, as study results from the previous Global Pricing Study show. In 2012, companies were still able to enforce half of their planned price increases, whereas two years later in 2014, they are only able to realize about one-third. Regular price increases appear practically impossible.
The current study shows that new products are by far the best means of achieving higher market prices -- yet, 74 percent of all new products in Asia-Pacific are a flop. One-fourth of the respondents even acknowledged that not one of their new products fulfilled the profit targets. The study reveals why: Companies have done a poor job of integrating customer value and pricing policies into the innovation process. "Most companies deal with product pricing and marketing when it's already too late -- often only right before the launch," explains Dr. Jochen Krauss, Managing Partner of Simon-Kucher’s office in Singapore. "It's no wonder that three out of four new products are a bust, thus shooting down any chances of securing those profit targets."
The consequences are devastating. Despite the economic recovery and attempted price increases, 36 percent of the respondents were unable to improve their margins in the last few years. The long-term profitability of companies in Asia-Pacific is at serious risk here. "Before you know it, the profits necessary to finance innovations will be gone. And it's precisely these innovations that are going to enable companies to compete sustainably in the market," says Fan Chen, Managing Director of Simon-Kucher’s office in Beijing.
The "Best" show the way
It doesn’t have to be this way. The "Best" of the respondents demonstrate how it’s possible to succeed long term -- despite price and competitive pressure. About 10 percent of all global study respondents belong to this group. "The 'Best' thoroughly understand the value that their new products offer and are therefore able to achieve the desired profits. That's what separates them from the 'Rest,'" adds Jan Haemer, study author and Director at Simon-Kucher. The study results back this up: Asia-Pacific’s “Best” have a 57 percent higher share of innovative products in their portfolio and their share of new products that meet profit targets is 62 percent higher. Also, when it comes to enforcing price increases, their ratio is 62 percent higher than the others.
What are the "Best" doing differently? A look at the overall study results shows that the “Best” work with a powerful mix of measures: Innovation, value and price management are C-level objectives at these companies. Furthermore, they completely integrate marketing and pricing into innovation processes from the product inception to the market launch. They work with professional methods and customized software to measure value and set prices. "The ‘Best’ leave nothing to chance," says Krauss. "If you know the true value of your product, you can set the right price. Besides, it’s essential that companies are able to make tough decisions when necessary – from the beginning to the end of the innovation process."
This also means having the courage to kill new products if it becomes clear that they won't meet their profit targets. Everyone, including C-levels and project teams, should take this to heart. As the study reveals, every company has the power to decide if it wants to be one of the "Best" or “Rest”. Now is the time to decide.
A summary of the international study results is available upon request.
* About the Global Pricing Study 2014
Approximately 1,600 participants, of which 39 percent are C-levels, from companies of all industries and over 40 countries across Asia-Pacific, the Americas and Europe, took part in May/June 2014 in an online study conducted by Simon-Kucher & Partners. Approximately 200 respondents from Asia-Pacific answered questions on their business environment, pricing practices and pricing performance. The study takes place every two years in collaboration with the independent Professional Pricing Society (PPS).
Dr. Georg Tacke is the CEO of Simon-Kucher & Partners. Dr. Jochen Krauss is Managing Partner of Simon-Kucher’s office in Singapore and Fan Chen is Managing Director of the company’s office in Beijing. Jan Haemer is a Director at Simon-Kucher.
Simon-Kucher & Partners, Strategy & Marketing Consultants:
Simon-Kucher & Partners is a global consulting firm with 720 professionals in 28 offices worldwide focusing on Smart Profit GrowthSM. Founded in 1985, the company has almost 30 years of experience providing strategy and marketing consulting, and is regarded as the world’s leading pricing advisor.
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