Category: Pricing

In the December 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
• Federal Government Policies
• Price pressure from competitors
• National employment outlook

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

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

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Recent posts, including “Price Discounting Issues” and “Price Discounting Issues In The Upcoming Holiday Season,” have discussed the recent increase in overall price discounting activity.  Now, the discounting seems reading to erupt into a “price war” in consumer electronics.

Excerpts from the November 20, 2013 Wall Street Journal article titled “Price War Looms For Electronics” :

Best Buy Co. shares plunged 11% Tuesday, after the electronics chain warned investors that it was prepared to sharply cut prices—even at the risk of its profit margins—to keep up with competitors that are aggressively discounting to win market share. Chief among those rivals is Wal-Mart Stores Inc., which last week stated bluntly that it will turn to even more price cuts to boost its stagnant sales.

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Once a highly profitable sector, consumer electronics is extremely competitive and vulnerable to increasingly frugal consumers. The pressure has worsened this year, because Americans appear to be plowing much of their budgets into new cars and upgrades to their homes, even as overall consumer spending remains tepid.

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The paucity of overall growth in spending means retailers are locked in a battle for market share. And in electronics, where the products are the same from store to store, the one real competitive weapon is price.

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“Price wars” can be a complex topic, albeit one that will almost certainly become more prominent given various economic and business conditions, including anemic growth in consumer incomes, continuing “deflationary pressures,” and intensifying price competition.  It appears as if in many situations, price-cutting and discounting are increasingly used rather indiscriminately.

While generalizations concerning “price wars” and other price-cutting actions are inadvisable – as pricing-related characteristics vary among companies and industries – in many instances, avoiding “price wars” is paramount.  Key actions to avoid a “price war” scenario include the ability to foresee and anticipate the dynamics of such a scenario, and then being able to execute appropriate sales, marketing, and pricing actions.

While some companies can be (very) successful at lower price points, such success demands a certain set of skills and disciplines that are often elusive.  Being, or becoming, a successful low-cost producer (or retailer) is often difficult.

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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.

In a Wall Street Journal article of November 15, 2013 titled “Shoppers Can’t Shake Blues,” trends in retail sales and price discounting are discussed, particularly with regard to the upcoming holiday shopping season.

Three notable excerpts include:

“No one is expecting the pie to grow rapidly, so the question is how do you get a bigger slice of it,” said economist Sung Won Sohn, who also serves on the board of teen retailer Forever 21 Inc.. “We’re going to see an unprecedented degree of promotions this holiday season.”

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Sluggish demand through the fall has prompted retailers to turbocharge promotions with hopes of attracting shoppers away from competitors.

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The holiday shopping period “is going to be about as competitive of a market as we’ve ever seen,” Wal-Mart U.S. Chief Executive Bill Simon said. “Incomes are going down, while food costs, gas and energy prices—while abating—are still eating up a big piece of customer budgets.”

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The above excerpts illustrate the intensifying price competition among retailers.  Given a variety of economic and business dynamics, price discounting is a topic that will continue to gain prominence.  As mentioned in the November 6, 2013 post, titled “Price Discounting Issues” :

Price discounting can be a complex subject, albeit one that will gain in prominence given a variety of economic dynamics, including anemic growth in incomes, continuing “deflationary pressures,” and increasing price competition.

While generalizations concerning price discounting are inadvisable, as pricing-related characteristics vary among companies and industries, it is important to realize the benefits and detriments of discounting, as well as its longer-term pricing and strategic issues.  As stated in the “Price Discounting Issues” post mentioned above:

However, given the various economic dynamics mentioned above, as well as the continuing price pressures seen in many industries, these price discounting issues should at least be considered, if not actively acted upon, if they are not already being fully addressed.

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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.

Price discounting can be a complex subject, albeit one that will gain in prominence given a variety of economic dynamics, including anemic growth in incomes, continuing “deflationary pressures,” and increasing price competition.

Recently there have been two notable articles regarding discounting.  The first is an October 30, 2013 article from Huffington Post titled “Restaurants’ Deals, Discounts Surge.”  The next is a November 1, 2013 Wall Street Journal article titled “GM Tries to Curb Discounting.”

Three excerpts from the Wall Street Journal article concerning GM:

“We don’t have to put our truck on sale to sell it,” Chevrolet Global Brand Chief Alan Batey said in an interview on Thursday. “Whether we lose a couple of points of market share in a given month because someone is liquidating isn’t our concern. We aren’t going to get into that dogfight.”

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Getting a premium price for its new pickup trucks is critical to Chief Executive Dan Akerson‘s overall plan to lift GM’s profit margins. He wants the company to achieve 10% operating margin by mid-decade, putting it on par with Ford.

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GM’s Mr. Batey contends Ford is only pulling ahead its own sales and not taking sales from Silverado and Sierra. Ford officials declined to comment on GM’s pricing strategy.

The article also contains a graphical representation of pickup truck discounts since 2006.

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The Wall Street Journal article mentioned above vividly illustrates various notable issues concerning price discounting.  They include:

• The difficulty of “escaping” discounting in an industry in which price discounting has been prevalent
• The question of whether discounting “pulls sales ahead”
• The recurring “margin” vs. “market share” conundrum
• Whether wanting to increase operating margin is – or should be – the primary determinant in whether to discount
• Is discounting really needed, or are there other actions or sales methods that can be deployed to offset the pressure to discount?

Other issues that are relevant in today’s price-competitive environments include:

• Is price discounting “worth the money” – or is it in effect “giving money away”?
• What preconditions should exist if a company hopes to successfully employ discounting?
• Is the overall pricing situation changing in the industry, or will it in the near future?
• Even in markets in which price pressures are high, are there opportunities to increase (at least some) prices?

Of course, these issues should be handled on a per-company basis, and as such generalizations are inadvisable.  However, given the various economic dynamics mentioned above, as well as the continuing price pressures seen in many industries, these price discounting issues should at least be considered, if not actively acted upon, if they are not already being fully addressed.

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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 concept of if and how a company can raise prices is a complex one, and of course needs to be determined on a company-by-company basis.

Often it is assumed that end-users are extremely price-sensitive and therefore no possibilities exist to raise prices.  However, this assumption may – in many cases – be mistaken.

Along these lines, MarketingCharts.com posted the results of a recent survey concerning pricing.  The October 25 post is titled “Almost Half of Americans Claim They Would Switch Brands – And Spend More – For Higher Quality.”  An excerpt:

47% of Americans agree (top-2 box score on a 5-point scale) that they would switch brands for one they believe is higher quality, even if the price is higher, according toresults of an online survey released by Ipsos OTX. American respondents appear slightly more likely than the average global respondent across the 25 countries tracked to prioritize quality over price. As can be expected, there are some significant differences when looking at the demographic breakdowns, some more surprising than others.

The post also contains a chart and discussion of how the results vary among demographic segments.

Due to the overall economic environment, as well as intensifying competition and pricing pressures in many segments, determining if and how prices can be increased – or at least maintained – likely is or will soon become imperative for many companies.

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StratX, LLC (stratxllc.com) 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.