Category: Pricing

Yesterday (July 22, 2013), the Wall Street Journal published an article titled “How Companies Can Get Smart About Raising Prices.”  An excerpt:

Raise prices in the middle of a sluggish economy, and they risk alienating customers they can’t afford to lose and leave themselves vulnerable to competitors.

Yet they have little choice but to ratchet up. The cost of making consumer goods and getting them to stores has been rising for some time. And a lot of the old strategies for shaving overhead, such as outsourcing, are getting less effective in economic terms and more unpopular in humanitarian terms.

The article offers advice on methods to (successfully) raise prices, and has a couple of notable graphics.

While I don’t necessarily agree with any or all of what is said in the article, I think that the article’s topic is valuable, as is awareness and discussion of these issues.

As with any discussion of pricing and pricing strategy, I strongly believe that such pricing issues need to analyzed and handled on a company-specific level, as each company almost certainly will have company- and industry-specific characteristics and dynamics that need to be considered.  As such, following generalized advice concerning pricing will likely be suboptimal, if not harmful.

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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 offers corporations and businesses advice, strategies, and actionable methods on how to optimally increase revenues and profitability.

In the June 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 company profitability 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 Agenda/Policies
• Price pressure from competitors
• Federal budget deficit

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

On June 3, the Wall Street Journal published a blog post titled “Are Consumers, Businesses Expecting Lower Prices?”  The article discusses facets and statistics regarding current and expected pricing trends.

A couple of notable excerpts include:

Regional Fed surveys also show weak pricing power among other manufacturers, which suggests other consumers are holding off on ordering. And the lack of demand may be slowing hiring.

also:

In a series of special questions asked in May, the New York Fed found the pressure to cut prices will continue over the coming year.

New York manufacturers anticipated an increase of just 1.2% in the prices they receive for their products, “the smallest expected increase recorded since these questions were first asked in May 2007,” the New York Fed said.

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StratX, LLC offers the above commentary for informational purposes only, and does not necessarily agree with the views expressed by these outside parties.

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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 offers corporations and businesses advice, strategies, and actionable methods on how to increase revenue and profitability.

“Affordability” of products and services, both now and in the future, is an issue that seems to lack recognition, for a variety of reasons including aggregate U.S. income trends.

One example of this was highlighted on Wednesday, and was seen in a CNBC article titled “New Cars Increasingly Out of Reach for Many Americans” that discusses the affordability of new cars given median family incomes.  The article states that the average price of a new vehicle in 2012 was $30,500, and discusses this figure in relation to incomes.

Seemingly supporting the general concept that new vehicles may be unaffordable for many is that the average age of cars and light trucks in operation in the U.S. reached 11.2 years in 2012, according to Polk.

While affordability (by purchasers) can be difficult to define, and can fluctuate significantly over time, there are many indications that affordability constraints and related pricing issues are significant issues for many companies.

While it is of course difficult to generalize across all firms and industries due to their various characteristics, the following questions with regard to affordability appear to be among those of primary significance:

• What is an affordable product?  Can affordability be estimated or measured?
• Can a product or service be somewhat affordable?
• What are the main drivers of product affordability, or lack thereof?
• If a company has a product that is, or will soon become unaffordable, can the company successfully adapt?  How might this be done?
• Are (purported) solutions to unaffordable product offerings viable from a longer-term perspective?  (i.e. by implementing such solutions, will such implementation cause additional problems?)
• If a company finds itself with an unaffordable product, will this status be transitory or lasting?
• Can high degrees of product “value” (at least partially) offset an otherwise unaffordable product?

Of course, there are many other questions as well.  One issue that I mentioned in a September 7, 2010 post (“Premium Pricing Strategies And The Economy“) also seems very relevant:

…are products and services now considered “staples” (i.e. necessary in nature) changing to more “discretionary” in nature?  How will this impact firms?

In my opinion such affordability issues will increase given various economic dynamics, and become a primary challenge in corporate strategy and management.  This challenge will (very) likely prove to be especially outsized for a variety of reasons.

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Please Note – The above is excerpted from the EconomicGreenfield.com post of March 4, 2013, titled “Issues Regarding Product Affordability”