Global Pricing Study 2019
A new global cross-industry study provides insight into how companies should handle price pressure, price wars, price increases, and digitalization initiatives. One thing is clear – the potential of good pricing is still widely underestimated.
Cologne – Just under two thirds of companies see sales as the biggest driver of future profit growth. Another 22 percent turn to cost-cutting, while only 12 percent believe they can boost profits by adjusting prices. These are the key findings of the Global Pricing Study 2019* by the global strategy and marketing consultancy Simon-Kucher & Partners. “The results demonstrate that companies are still dramatically underestimating price as the most important profit driver,” says CEO Dr. Georg Tacke.
Most CEOs are well aware of the importance of price increases, with 78 percent of companies planning to increase prices this year. Still, targets are not overly ambitious. Half of all companies intend to raise prices in line with inflation, and only 13 percent dare to go beyond that. Considering the low success rates when it comes to implementing price increases, these targets are still not high enough to remain profitable in the long term. According to the study, two thirds of participants achieved less than half of their planned price increases last year.
“This is disastrous,” Tacke explains. “Most companies have a price implementation rate that is still much too low, at around 28 percent on average. This means that when a company announces plans to increase prices by ten percent, the expected outcome can be an achieved increase of only 2.8 percent. Planned price increases need to be much higher than cost increases to protect profits from gradually being eaten away. There needs to be a buffer.”
More price wars than two years ago
Over two thirds of the surveyed companies have experienced greater price pressure in the last two years. In addition, 57 percent of companies report they are currently involved in a price war (2017: 47 percent). Two years ago, 77 percent were convinced that their competitors had started the price war, but this year, only 44 percent believe the same. In fact, one third say they initiated the price war themselves.
Commenting on this trend, Tacke notes, “Companies knowingly starting price wars is a disturbing development that has been on the cards for some time now. In the digital world, where variable production costs play less of a role, many companies are using price as a ‘marketing weapon.’ But unfortunately, the same old rule still applies: in a price war there are generally no winners, only losers.”
Investment in digitalization makes an impact
Almost three quarters of companies say they have invested in digitalization initiatives in the last three years. 61 percent of those surveyed named revenue growth as one of the most important motivations. 40 percent of companies hoped their digitalization initiatives would have an effect across the board with revenue growth, cost reductions, and increased efficiency.
Half of those surveyed report that their digitalization initiatives have generated positive effects on revenue. However, two years ago, the sentiment was markedly different. In the 2017 survey, less than a quarter of companies had noticed positive revenue effects. “This is encouraging to see,” says Tacke. “Companies no longer falsely assume they can get by without a plan, and have started to systematically address the topic of digitalization. Clear, targeted projects with specific goals have replaced digitalization for digitalization’s sake.”
*About the Global Pricing Study 2019: In the Global Pricing Study (GPS), Simon-Kucher & Partners regularly surveys companies from many different industries worldwide about their growth, price setting, and digitalization strategies. This year, for the first time, the GPS 2019 was integrated into the new global Simon Kucher “Trend Radar” study. Around 1,650 companies from over 30 countries completed an online survey between March and April. Whereas in previous years, it was primarily pricing managers who were surveyed, the target group for the current GPS was expanded to include companies’ top management.
Simon-Kucher & Partners, strategy & marketing consultants: Simon-Kucher & Partners is a global consulting firm specializing in TopLine Power® with a focus on strategy, marketing, pricing, and sales. We help our clients achieve growth and profit targets by applying practical, evidence-based strategies. Simon-Kucher & Partners is regarded as the world’s leading pricing advisor and thought leader. The firm has 1,300 employees in 38 offices worldwide.