Global research by intelligent pricing specialist Flintfox reveals that 80% of businesses’ profits have suffered because prices couldn’t keep pace with rising costs and changing market conditions.
The study found that on average businesses estimated they lost $478,000 in potential profit as a result of not being able to change prices fast enough and 87% of pricing professionals are worried about their ability to respond to future volatility.
As market conditions continue to be challenging, businesses are attempting to adopt more sophisticated pricing strategies with mixed success. Most businesses now employ tailored pricing for different regions and sales channels to maximise revenue and margin opportunities, but according to the research, 64% find it challenging to roll-out their complex channel pricing and 62% struggle with regional pricing strategies.
In addition, nearly two thirds of businesses say they lack the ability to model price changes in advance, so critical pricing decisions are being made without an understanding of the likely impact.
Flintfox CEO John Moss says businesses have learnt to adapt their pricing strategies in the face of ongoing instability driven by demand fluctuations and cost volatility due to supply chain disruption. But the ability to roll out fast, responsive price changes still eludes too many organisations.
“Price is a critical decision and is one of the biggest drivers of profit,” he said. “Given this importance and the higher likelihood of public scrutiny, pricing should be higher up the corporate agenda and pricing professionals given the tools they need to manage margins effectively.”
Price war highlights need for pricing literacy
A recent survey by global consultancy firm Simon-Kucher reveals that 83% of Australian businesses have passed on price increases to customers to keep pace with inflation. However, 70% of businesses are also engaged in a price war, creating a pricing tightrope for companies globally.
The survey analysed global pricing trends, identifying key factors contributing to price increases and the strategies adopted by different industries. Inflation, rising costs and market demands have led to higher prices for businesses, particularly in the APAC and Australian markets. Despite demonstrating greater pricing literacy, businesses are still engaged in price wars at higher price points in selling their products and services.
Identifying when price increases are necessary for survival amidst rising costs is crucial, says Simon-Kucher. One in four businesses struggle with price increase management, often succumbing to costs that jeopardise their operations. Despite 85% of Australian businesses having revenues that either matched (32%) or exceeded (53%) the average inflation rate, there is more to improve on pricing literacy.
Maintaining profitability is still a challenge that can be addressed through properly raising prices to cover cost increases. The Global Pricing Survey further shows that Australian businesses only realised 33% of their planned price increase, and only 6% managed to realise the full planned increase.
Simon-Kucher Australia Partner and Managing Director Christoph Petzoldt says there’s no one-size-fits-all solution for the price pressures businesses face.
“With better identification of the underlying causes, smarter solutions will emerge,” he said. “As both global and local markets continue to feel the effects of inflation, businesses must employ multiple strategies to keep pace with inflation and market innovation, directly influencing their pricing strategies.”