Category: Pricing

Pricing issues are discussed on this site under posts found in the “Pricing” category. As of this writing there are 23 previous posts regarding price management issues.

As well, various pages discuss the following aspects regarding price management:

“Pricing And Profitability”

“Pricing Power”

“Signs Of Pricing Problems”

On a monthly basis, the Federal Reserve Bank of Atlanta publishes report titled “Business Inflation Expectations” (BIE). This report highlights survey results from regional businesses’ views on various factors that impact profitability.  These factors include unit costs; unit cost expectations; inflation; sales levels; pricing issues, including profit margins; and other factors.

On this site, highlights of these surveys are seen in posts found under the “Profitability” category.

In the March 2019 report, a question asked firms to select from a list of statements describing various characteristics regarding price changes. As well, firms also provided their frequency of price changes.

Among the types of questions asked were whether prices were raised when costs increased, as well as the ability and cost to change prices.

The frequency of price changes is displayed, ranging from daily to annually, as well as on a multi-year basis and intermittent basis.

The most common response to each of the two categories of questions was that prices are raised when costs increased, and pricing changes are done on an annual basis.

These survey results are interesting as they raise the issue as to how often and for what reasons pricing changes are made. Of greater significance is whether these motivating factors are in fact optimal (i.e. is there room for improvement) with regard to the overall price management function. The answers to these questions should take into account a broad range of issues, including industry- and company-specific factors. Various metrics and analyses can be conducted to provide quantitative and qualitative answers to such questions.

On this site, various issues regarding pricing are discussed, both on various pricing posts as well as the following three pages:

“Pricing And Profitability”

“Pricing Power”

“Signs Of Pricing Problems”

One notable ongoing development has been increasing discounting and pricing pressures.  The November 12, 2015 New York Times article, titled “Macy’s Sounds a Holiday Alarm, and Retailers Brace for Heavy Discounting.”

Two excerpts from the article:

The retailer of “Miracle on 34th Street” warned Wednesday that its stores were awash with merchandise after a sluggish fall season and that slow business would force it to go all-out on discounts during the holidays.

also:

Aggressive discounting from one of the country’s biggest merchants is bad news for retailers this holiday sales season, which is shaping up to be highly discount-driven. It also raises questions about the strength of the economic recovery, and of consumer sentiment.

Additional details can be found in the New York Times article mentioned above.

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ProfitabilityIssues.com is published by StratX, LLC (stratxllc.com).  StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

There are many direct and indirect indicators that illustrate trends of widespread increasing price pressures and price competitiveness.  While the reasons for this increasing price competitiveness are various, and include both economic and industry factors, there have been numerous indications of increasing price pressures in many different industries.

Two recent articles discuss factors that are leading to strong price competition.  These articles are the May 28, 2014 S&P Capital IQ article titled “New Phase Of Competition Poses Ratings Risk For The U.S. Wireless Industry” as well as the May 2, 2014 Automotive News editorial titled “No margin for error.”

It is because of this increasing price competitiveness and its implications for profitability that pricing has been discussed extensively within this site, generally under posts in the “Pricing” category and on various pages.

Factors that can portend increasing price competitiveness are various, and include the following:

• Increased price discounting
• Overcapacity
• Inventories that are too high
• “Price wars”
• “Deflationary pressures”
• Weak revenue growth
• Vulnerability of overall corporate profitability to substantial decline

While many resources on pricing practices give generalized advice on pricing and price strategy, such generalized advice can lead businesses astray, especially in a complex business environment like that currently experienced.   Pricing issues and their impact often varies both at the industry and company level, and as such any pricing actions should take these industry and company-specific factors into account.

Also, given the overall business and economic environment, pricing strategy and other price management actions should be proactive – i.e. done before problems occur, in order to avoid or minimize adverse changes in overall profitability –  as opposed to being reactive, in which a business may find itself in an (continually) adverse situation with regard to pricing actions and profitability trends.

In the March Duke/CFO Magazine Global Business Outlook Survey, one of the reports is titled “Tables of Key Numbers.” (pdf) Two areas underscore CFO concerns with regard to pricing pressures and margins.

As seen on the bottom of page 2, there is a list of items seen under “Top Concerns for U.S. Businesses.”

Under the “MACRO CONCERNS” is seen the following:

• Consumer Demand
• Price pressure from competitors
• Federal Government Policies
• National employment outlook

Under the “INTERNAL TO OWN FIRM” is seen the following:

• Ability to Maintain Margins
• Attracting and retaining qualified employees
• Cost of health care
• Ability to forecast results

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Among the many challenges of managing a business is accurately assessing the overall business attractiveness of various market segments.  Due to a variety of factors, over the last few years, selling to the (very) affluent and upper-income consumer segments has proven to be successful for many companies.  This success reinforces what appears to be a widely-held general perception that selling to affluent consumers is highly desirable, in part because affluent market segments tend to be less price-sensitive.

On February 2, the New York Times published an article titled “The Middle Class Is Steadily Eroding.  Just Ask The Business World.”  This article discusses consumption dynamics of various income classes, and the ramifications – and reactions of businesses.

An excerpt:

More broadly, about 90 percent of the overall increase in inflation-adjusted consumption between 2009 and 2012 was generated by the top 20 percent of households in terms of income, according to the study, which was sponsored by the Institute for New Economic Thinking, a research group in New York.

The effects of this phenomenon are now rippling through one sector after another in the American economy, from retailers and restaurants to hotels, casinos and even appliance makers.

This article implies that companies are increasingly gravitating toward targeting more affluent consumers, given the overall consumption dynamics mentioned above.

However, from a pricing perspective, the issue arises as to how resilient pricing power in these affluent market segments will be going forward, especially given – in many cases – that prices have been (steeply) rising over the last few years.

The Wall Street Journal article of today (March 3, 2014), titled “Soaring Luxury-Goods Pricing Test Wealthy’s Ability To Pay,” discusses various issues and dynamics concerning luxury goods pricing.

A couple of excerpts:

Despite expanding into new markets, the luxury-retail business has been relying on price increases to drive sales. Now, even the very wealthy are nearing the limits of what they are willing to spend.

also:

But there are also signs that price increases are starting to wear thin with Western customers amid heightened competition from more-affordable brands.

“Luxury brands are at risk of losing customers who cannot or do not want to pay more,” said Claudio D’Arpizio, a partner with consulting firm Bain & Co.

As seen in the Wall Street Journal article mentioned above –  as well as a variety of other confirmations – it appears as if the affluent and upper-income consumer segments are – in general – becoming more price sensitive.  This trend is being driven by many different factors, some of which are complex.  While the implications for companies selling into these upper-income segments is clear, there are likely implications for all companies, especially regarding pricing power and demand/pricing dynamics.

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ProfitabilityIssues.com is published by StratX, LLC (stratxllc.com).  StratX, LLC is a management consulting firm and strategic advisory that focuses on the analysis of current and future business conditions, and given these conditions, offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.