Category: Pricing

Both the increasing amount and nature of price discounting are issues that are gaining prominence.  This increasing prominence – and its implications regarding profitability – have been featured in many of this site’s pricing posts.

Investor’s Business Daily (IBD) published an article on February 24, 2014, titled “Retail Discounting Can Be Hard To End, Risking Profit.”  The article discusses various aspects and causes of the increasing retail discounting and promotional activities.

A notable excerpt:

Minimal personal income gains continue to strain consumers, he says, placing pressure on retailers to reduce prices as they vie for shares of a consumer discretionary spending pie that isn’t growing.

“CEOs are asking themselves, ‘How do I grow in a slow-growth world?'” added Joel Bines, managing director of consulting firm AlixPartners. “The answer is to take share from competitors, and the fastest way is to out-promote them. It’s a ‘beggar-thy-neighbor’ strategy and it’s escalating.”

The article also features various statistics concerning retail discounting, decreasing margins and profitability.

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Price discounting is an issue that is gaining increasing prominence, and because of this increasing prominence and its implications regarding profitability, price discounting and increasing price pressures have been featured in many of this site’s pricing posts.

Yesterday (February 12, 2014) the Wall Street Journal Journal published an article titled “Rising Auto Inventories Prompt a Bet On Pricing.” The article discusses various issues regarding auto industry pricing and incentives, given that auto inventory levels have recently swelled.

A couple of excerpts from this Wall Street Journal article:

Detroit’s big auto makers are trying to sweeten discounts to clear unsold vehicles from dealer lots, but not so much to start a profit-killing price war.

It is a balancing act making Wall Street investors nervous. Analysts aren’t sure whether the moves to counter a January slowdown in sales—particularly new discounts on large pickup trucks—will undermine the rising prices that have helped General Motors Co., Ford Motor Co. and Chrysler Group LLC rebuild profits during the past three years.

also:

Overall, GM reported 114 days’ worth of unsold vehicles at the start of February meaning it would take the auto maker close to four months before it ran out of vehicles if it stopped production today. Ford had 107 days worth of unsold vehicles while Chrysler had 105 days. U.S. auto makers generally like to keep 60 days’ worth of inventory on hand.

The article also features quotes from various industry executives, and various statistics such as how long it is taking various automakers to sell a vehicle.

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Auto industry price discounting was also discussed in the November 6, 2013 post titled “Price Discounting Issues.”  In that post, various issues regarding price discounting were discussed.

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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.

On February 4, 2014 the Wall Street Journal published an article titled “Firms Pinched by Pressures to Hold Down Their Prices.”  The article discusses various companies’ recent experiences regarding price pressures and their causes.

A couple of excerpts:

American companies are struggling with falling prices for a number of their key products amid intense competition and pressure from cost-conscious customers.

Executives from companies as varied as General Electric Co., Kimberly-Clark Corp. and Royal Caribbean Cruises Ltd. said some prices slipped in the last three months of the year—sometimes significantly.

also:

With about half of companies reporting year-end earnings, Thomson Reuters estimates revenue for companies in the S&P 500 stock index rose just 0.9%—capping two years of lackluster revenue growth and tying the third-weakest quarterly sales growth since the fall of 2009. Part of the problem is that weak revenue leads companies to cut prices to boost sales, which reduces the value of those sales, and trickles down through the supply chain.

More details can be seen in the aforementioned article.

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While, as mentioned in the Wall Street Journal article,  pricing pressures pressure aren’t (to-date) ubiquitous, nonetheless there are many direct and indirect indicators that illustrate trends of widespread increasing price pressures and price competitiveness.

The Wall Street Journal article illustrates manifestations of a variety of problematical economic issues that have and will continue to adversely impact business profitability.  Among various issues that have been discussed throughout this website include the following:

• Increasing pricing pressures
• Increased price discounting
• “Price wars”
• “Deflationary pressures”
• Weak revenue growth
• Outsized nature of current margins
• Vulnerability to overall corporate profitability to substantial decline

While the above issues are complex, and their impact will vary by industry and company, increasing price pressures and its impact on profitability is a topic that will continue to gain prominence.  As such, businesses would be well-suited to, at the very least, contemplate how best to adapt to such an increasingly price-competitive environment, if not actively plan and implement for such a business environment.

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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.

The January 27, 2014 Wall Street Journal Real Time Economics post titled “More Businesses Expect to Raise Prices in Coming Months” highlights various results from the National Association for Business Economics (NABE) January 2014 Industry Survey.

Here is an excerpt from the post concerning pricing and costs:

About 43% of companies plan to raise prices in the first three months of 2014, far more than the 20% that said they actually did raise prices in last year’s fourth quarter. Just over half — 56% — expect prices to stay flat and about 2% expect them to fall.

The NABE survey, conducted Dec. 19 to Jan. 6 and released Monday, is based on responses from 64 economists at U.S. companies and trade groups.

The overwhelming majority — 85% — said their firms saw flat or falling materials costs over the last three months, and 77% said wages remained the same or fell.  But 42% expect their non-labor input prices to rise in the coming quarter, while 51% expect them to stay flat and 7% expect them to fall.

Additional details can be seen both in the WSJ Real Time Economics post and NABE survey mentioned above.

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The concept of consumers’ price sensitivity is a complex one, and of course needs to be determined in a context-specific basis.

Often it is assumed that (on average) consumers are (very) price-sensitive, and stemming from this belief, undue focus is put on offering low prices.  However, this assumption may – in many cases – be either mistaken or exaggerated.

Along these lines, MarketingCharts.com posted the results of a recent Experian Marketing Services survey concerning shoppers’ price sensitivity relative to that of other factors.  The January 7 post is titled “Price Said to Matter Less Than Context Even to the Most Deal-Hungry Shoppers.”  An excerpt:

The post also contains a table and discussion of how the results vary among “deal-seeking” segments.

Due to the overall economic environment, as well as intensifying pricing competition and price discounting in many segments, accurately determining consumers’ price sensitivity – and if and how prices can be maintained and/or increased – will likely continue to grow in importance for many companies.

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