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.
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.
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.
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.