77 Percent of Companies Fail to Impact Their Top Line With Their Digital Initiatives
Global Pricing & Sales Study 2017: The majority of companies are investing in the wrong digital initiatives, and only 18 percent can be classed as true “digitalization heroes”.
In the last three years, 81 percent of companies have invested in digitalizing their business, with the vast majority focusing on increasing their top line. Despite these efforts, only 23 percent of companies have seen their investments make genuine topline impact. In other words, the digitalization efforts of three out of four companies have failed. These are some of the findings of the latest Global Pricing & Sales Study (GPSS) 2017* published by the global strategy and marketing consultancy Simon-Kucher & Partners.
“Many of the companies whose digitalization initiatives didn’t impact their top line either failed to recognize the value of technology or didn’t properly integrate a dedicated digital lead into their existing organizational structure”, explains Dr. Georg Tacke, CEO of Simon-Kucher & Partners. “They also seem to have invested in the wrong digital initiatives,” he adds.
The focus of C-level decision-makers should be on improving revenue growth, not solely on cutting costs. “In the GPSS, we see that the most effective ways to achieve growth are to invest in monetizing digital products and optimize prices using big data”, says David Vidal, study author and Partner at Simon-Kucher. However, the findings also show that these two methods are only used by 8 and 11 percent of firms respectively, ranking them among the least popular options. “Half of the companies surveyed prefer to invest in initiatives to increase the efficiency of their processes, particularly sales processes – but it takes much more time for this approach to generate noticeable results”, Vidal emphasizes.
Digitalization: A curse or a cure?
In the study, one in three companies cite increasing price pressure in their industry as the biggest constraint on their future growth. The three main causes of increased price pressure are low-price competition, increased negotiation power of customers, and greater price transparency. “They all can be linked to digitalization and its impact”, notes Jan Haemer, study author and Director at Simon-Kucher. “This demonstrates that digitalization has the potential to jeopardize growth and can lead to increased price pressure – as Amazon’s price-cutting strategy at its newly acquired subsidiary, Whole Foods, has shown.”
According to the GPSS, digitalized companies are twice as likely to intentionally start price wars. One possible reason for this is that more accurate pricing and improved cost information lead to overconfidence that price wars can be won. Another explanation is that management teams at digitalized companies tend to be younger and less experienced, making them more aggressive on pricing. “Almost half of all companies are involved in a price war,” Haemer points out. “However, in most price wars, there is only one winner – the customer. It is important to have a well-thought-out digital strategy so that digitalization doesn’t become a curse.”
The real digitalization heroes
The study also reveals that true “digitalization heroes” only make up 18 percent of companies. In terms of what makes a real digitalization hero, there are a few key things all these firms do: they invest in digitalization, they focus on their top line, and they achieve topline impact from their digitalization initiatives, which also has a positive effect on their bottom line: They generate 37 percent higher EBITDA, regardless of whether a price war is being waged or not. Furthermore, digitalization heroes employ almost four times as many people in monetization as other companies. Dr. Georg Tacke says, “Digitalization heroes are “best in class”: 84 percent have a digital roadmap integrated into their strategy, targeting significant growth, not just cost-cutting. They see pricing and digitalization as growth drivers, and are twice as likely as other companies to optimize prices using big data. They are role models for the entire market.”
A short version of the study is available for download here.
The complete study is available on request.
*About the Global Pricing & Sales Study 2017:
The Global Pricing & Sales Study 2017 (GPSS) surveyed 1,925 companies across major industries in over 40 countries. It provides a comprehensive picture of their pricing and digitalization strategies, as well as their overall business environments. The study was fielded in collaboration with The Center for Pricing at the Simon Business School, University of Rochester; and Z. John Zhang, Professor of Marketing at the Wharton School, University of Pennsylvania. The study is conducted on a regular basis and is the only one of its kind.
Simon-Kucher & Partners, Strategy & Marketing Consultants:
Simon-Kucher & Partners is a global consulting firm with over 1,000 professionals in 34 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.