Strong Pricing Pressures

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.