Watches on sale in Orchard Road, Singapore.
The capability to enforce price increases is decreasing worldwide, as study results from the previous Global Pricing Study show. In 2012, companies were still able to enforce half of their planned price increases, whereas they are only able to realise about one-third in 2014. Regular price increases appear practically impossible. For instance, regional companies that wanted to raise their prices by 4% only managed 1%.
Despite the economic recovery and attempted price increases, 36% of the respondents in Asia Pacific have been unable to improve their margins in the last few years. "Before you know it, the profits necessary to finance innovations will be gone. And it's precisely these innovations that are going to enable companies to compete sustainably in the market," warns Fan Chen, Managing Director of Simon-Kucher’s office in Beijing.
Despite the economic recovery and attempted price increases, 36% of the respondents in Asia Pacific have been unable to improve their margins in the last few years. "Before you know it, the profits necessary to finance innovations will be gone. And it's precisely these innovations that are going to enable companies to compete sustainably in the market," warns Fan Chen, Managing Director of Simon-Kucher’s office in Beijing.
One-fourth of the respondents even acknowledged that not one of their new products fulfilled the profit targets. The study reveals why: Companies have done a poor job of integrating customer value and pricing policies into the innovation process.
"Most companies deal with product pricing and marketing when it's already too late - often only right before the launch," explains Dr Jochen Krauss, Managing Partner of Simon-Kucher’s office in Singapore. "It's no wonder that three out of four new products are a bust, thus shooting down any chances of securing those profit targets."
Of the global respondents of the study, one group rose above the others. This group, the “Best”, meet their price targets for new products and continue to do so in the long term because they factor pricing and marketing into the innovation process from the very beginning, says Simon-Kucher & Partners.
The "Best" of the respondents demonstrate how it’s possible to succeed long term - despite price and competitive pressure. About 10% of all global study respondents belong to this group. "The 'Best' thoroughly understand the value that their new products offer and are therefore able to achieve the desired profits. That's what separates them from the 'Rest,'" adds Jan Haemer, study author and Director at Simon-Kucher.
The study results back this up: Asia-Pacific’s “Best” have a 57% higher share of innovative products in their portfolio and their share of new products that meet profit targets is 62% higher. Also, when it comes to enforcing price increases, their ratio is 62% higher than the others.
A look at the overall study results shows that the “Best” work with a powerful mix of measures: innovation, value and price management are C-level objectives at these companies. Furthermore, they completely integrate marketing and pricing into innovation processes from the product inception to the market launch. They also work with professional methods and customised software to measure value and set prices.
"The ‘Best’ leave nothing to chance," says Krauss. "If you know the true value of your product, you can set the right price. Besides, it’s essential that companies are able to make tough decisions when necessary – from the beginning to the end of the innovation process."
This also means having the courage to kill new products if it becomes clear that they won't meet their profit targets, advises the company.
*Approximately 1,600 participants, of which 39% are C-levels, from companies of all industries and over 40 countries across Asia-Pacific, the Americas and Europe, took part in May/June 2014 in an online study conducted by Simon-Kucher & Partners. Approximately 200 respondents from Asia-Pacific answered questions on their business environment, pricing practices and pricing performance. The study takes place every two years in collaboration with the independent Professional Pricing Society (PPS).
