BONN, Ger.–Nine out of ten companies (93 percent) worldwide acknowledge the impact of digitalization, yet don’t know where to start when it comes to addressing the issue. Only with the right price strategy will companies be able to overcome the challenges of this mega trend.
This is a key finding of Simon-Kucher’s Global Pricing Study 2016, in which approximately 2,200 managers from companies in more than 40 countries and 25 industries participated. “Pricing plays a key role when it comes to digitalization within a company, but is often overlooked. Without professional pricing, even the best digitalization strategies won’t pay off”, explains Dr. Georg Tacke, CEO at Simon-Kucher.
The mega trend is mainly met with optimism, since 73 percent of companies see digitalization as an opportunity, particularly respondents from the tourism, software, transport, logistics and insurance industries. Nevertheless the results are alarming: 27 percent of the surveyed companies consider the digital revolution to be a risk. This pessimism is mainly present in the retail, paper and packaging and automotive industries. Furthermore, every fifth company within this 27 percent is uncertain which measures are necessary to overcome the potential risks of digitalization. This number decreases to every tenth company among the optimists.
Moreover, six out of ten participants expect digitalization to have a positive impact on their sales. Still, almost just as many fear it will have a negative impact on prices and margins.
Pricing tools: Companies can prepare themselves for digitalization
Most companies either completely neglect the topic of price management in their digitalization strategy, or are simply unable to handle the issue. “The problem is that when it comes to pricing, many companies are still working with outdated tools. It’s similar to racing a carriage against a car”, says Tacke. The study’s ‘best’ companies prove that tailor-made tools are definitely worthwhile. By investing in their price management, their profits, as measured by EBITDA margins, are 27 percent higher than the profits of the ‘rest’.
Focus on online retail: There’s no more time for experimenting!
Particularly with online retail, it can already be seen which companies have found the right answers to digitalization. Ever-improving algorithms, whereby customers not only receive individualized offers but also personalized prices, maximize the likelihood of a purchase. Even though 49 percent in the retail sector use pricing software, 65 percent also believe they should invest more in this area. “The fact is that e-commerce has long seen the end of its trial period! Companies need to keep up with the times when it comes to online pricing”, explains Tacke.
Are price models digital-ready?
Tacke recommends every company to check whether its price models are ready for the digital age. Especially when it comes to dynamic pricing, price differentiation and innovative price models, digitalization offers an array of opportunities.