While a majority of companies saw a profit margin improvement in 2020, ensuring long-term sustainability in the face of increasing volatility remains a questionmark
Boston, 20 April 2021 – Almost 60 percent of companies globally improved their profit margins in 2020, with software, internet, logistics, chemicals and construction industries coming out as some of the biggest winners. However, with the majority of these improvements attributed to COVID-19 impacts, only 19 percent of companies predict sustainable long-term improvements. These are the key findings of the Global Pricing Study 2021*, by global pricing and strategy consultancy Simon-Kucher & Partners.
“At face value this might be an unexpected result,” said Co-CEO Mark Billige. “2020 was a challenging year, but actually the impact of the pandemic was not equally felt across industries. Whilst the headlines tend to be dominated by the losers there were in fact many winners. The more important question is what drove these margin improvements, and how sustainable they are. We face a potentially volatile year ahead, with an insecure global economy and predicted rises in inflation. Even the winners of 2020 must act now to insulate themselves from these effects.”
Margin improvements were largely driven by favorable volume and cost developments. 45 percent of companies attributed their improvements to demand increases, with 34 percent attributing them to cost savings. Only 21 percent sited price improvements as a driver. For many companies, this means increased exposure to changing inflationary and economic conditions.
Looking forward, we continue to see companies undervaluing the opportunity pricing offers as a lever for sustainable profit growth. Only 27 percent of companies identify price as the biggest driver of future growth. Of the companies surveyed, over two thirds plan to increase price at most in line with inflation, with 22 percent planning no price increase at all. “The lack of pricing ambition presents a clear risk for companies of losing ground versus their 2020 position by failing to factor in predicted inflationary increases,” commented Billige.
Price wars return to 2017 levels
The majority of companies (57 percent) reported experiencing higher price pressure in the last twelve months, however this has reduced against 2019 levels (65 percent). There was also a drop in the number of companies actively involved in a price war versus 2019 levels, down to 45 percent (2019: 57 percent). This is more aligned to 2017 data (47 percent). The drop in price war involvement was accompanied by a drop in the number of companies claiming responsibility. In 2019, almost 60 percent of companies claimed they started the price war, either intentionally or accidentally. This was reduced to 26 percent in our most recent study, also returning to nearer 2017 levels.
Billige noted that “companies appear more aware of the dangers of price war involvement, with fewer deliberately initiating them. However, these results demonstrate year on year how companies undervalue price as a profit driver. We saw business expansion, and in particular new product launches cited as the main priorities for businesses to get back on track post-Covid. However, by downplaying the potential of pricing and revenue model adaptations, companies risk missing key opportunities for long-term growth.”
*About the Global Pricing Study 2021: The Global Pricing Study evaluates the pricing and growth strategies of companies across all industries worldwide. The unique study is the largest of its kind and each edition reveals valuable insights on hot pricing topics and trends, the competitive environment, and profit outlooks. This 7th edition included approximately 2,200 respondents covering over 27 countries and 36 industries took part in an online survey in March 2021. The sample includes respondents across top and middle management positions in a range of B2B and B2C companies. Further information: https://www.simon-kucher.com/en/simon-kucher-global-pricing-study
Simon-Kucher & Partners, strategy & marketing consultants: Simon-Kucher & Partners is a global consulting firm with more than 1,400 professionals in 41 offices worldwide focusing on TopLine Power®. Founded in 1985, the company has over 35 years of experience providing strategy and marketing consulting and is regarded as the world’s leading pricing advisor.