Table Of ContentUnlocking the
potential of pricing
rA e oy u thriving in the
aw ter or lost at sea?
kpgm c. okmu /nu/ ol cik ngpricing
1 Pricing Report Unlocking the potential of pricing
Introduction
The best pricing organisations control, communicate and
manage their pricing strategies effectively, and by doing
so maximise their potential for greater proftability.
However, for many companies, pricing is still used as
a tactical lever and value is left on the table.
KPMG in the UK conducted 300 executive interviews • 4 0% of companies in our research have not
in September/October 2015 across a range of moved beyond (eons-old) ‘cost plus’ as their
sectors in the UK, including Industrial Markets, Retail, core pricing method. Only 25% employ value-
Telecommunications, Consumer Goods and Media. based pricing.
Our fndings reinforced some recognised themes, • 6 0% of companies surveyed have created a
but also highlighted some unexpected results: dedicated pricing team or function, which is a
positive development; however, 40% said their
• 6 0% of executives interviewed believe they company has not, or they don’t know.
could improve proftability by 5% or more through
more effective pricing; better still, 25% believe Our research fndings are clear: many
they could improve proftability by 10% or more.
organisations are taking a much more
strategic approach to pricing. But it
remains very much a work in progress
for others and there remains a signifcant
proft opportunity to go for.
2 Pricing Report Unlocking the potential of pricing
Pricing: How deep is your understanding?
eW ev’ ed n� e d of ru cta egorie s o f orgna itas ion esab d on teh
os pih ts icta ion o f teh ir pricing.
ru T tle s ) 0 % 1 (
Turtles don’t have a defned pricing strategy
or pricing team and have no clear approach nu T a )3 0 (%
to tracking pricing performance. Most are
unaware of the size of the prize associated Tuna have been making pricing decisions the
with more effective pricing. same way for a long time and are slow to change.
There is typically no pricing team or pricing
leader and they don’t see the value in taking
£ a more structured approach to pricing. Pricing Dolphin s ) % 5 2 (
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customers. However, they have a tendency to lower Sharks are dominant players, equipped with pricing sensors
their prices quickly if sales targets are not being met. and ready to take advantage of opportunities quickly. They
£ T6%he–y1 s0e%e pthroef ptr iimcipnrgo voepmpoernttu.nity as between shtarvaet eingvy,e as tleadrg ine pricing atesa am c anpda bai lpitryi,c ihnagv lee a dceler.a Tr hperi CciEnOg
understands the importance of pricing. They track prices
against competitors across time, use dedicated pricing
software and appreciate the importance of innovative
pricing analytics. Sharks see the pricing opportunity as
anywhere in the range of 6%–30% proft improvement.
£
£
3 Pricing Report nUolncloik nckgi ntgeh tphoet epnotei la not f iparl iocfin pgricing
Pricing strategies – clear and understood?
At frst sight, our survey results provide good news, of CEOs/COOs/CFOs Clarity of strategy also varied signifcantly according to
with nearly nine in ten businesses (87%) claiming to believe their pricing where the individual sits in the organisation. 92% of
have a clear pricing strategy that is understood and 92% strategy to be clear CEOs/COOs/CFOs believe their strategy to be clear,
adhered to. For Sharks, the response rate was 99%. but this drops to 82% amongst sales directors.
By way of contrast, when we conducted this survey
in 2013, only six in ten (56%) responded similarly. However this drops Companies headquartered outside the UK also score
to 82% amongst sales lower – suggesting that the strategy is either diffcult
That said, nearly half (44%) of companies in this 82% directors to communicate clearly across borders or perhaps that
year’s survey agree their company is struggling the strategy is mainly designed for the organisation’s
to determine the optimum pricing strategy for the home country or market.
current economic climate, so it’s not all plain sailing.
There are marked variations by sector:
So, is your pricing strategy communicated
clearly through the organisation? Is it
of respondents in the
understood and adhered to in practice?
Telco sector say their
100% pricing strategy is clear
Dropping to
87% have a clear
pricing strategy in Consumer Goods
90%
compared to
in Industrial Markets
in our 2013 survey 80%
56%
in Business Services
71%
4 Pricing Report Unlocking the potential of pricing
Pricing strategy – fit for purpose?
tI s ’ one tih ng to evha a cel ra pricing ts rta eg . y utB it s ’ Teh re ew re os em notelba rav ita ion s yb es ctor in
na oteh r tih ng viha ng teh rigth one . Fort y percent o f oru rees ra c .h Price-es nis tiev es ctor s il ek eT cl o
respondent s evha not moev d beoy n d c‘ ots p ’sul sa na d Retia l ra e om ts il ek ly to pru eus a copm etitor-
teh ir core pricing em toh d wih c h i s disappointing. orientta e d pa proca .h Meid ,a nI tsud ri la Mra ek t s
na d Conemus r Goo sd ra e om re il ek ly to of ol w a
cots -orientta e d ts rta eg. y
Siez also matters here. Nearly ha l f of sm a l ler
£+ E F companies employ a cost plus strateg, y an d
it is especial y prevalent of r those companie s
with turnoev rs of below £ 5 0 m . A mongst
those companies with turnoev r of £ 5 0 0 +m
teh re i s a mra ek d increesa in teh proportion o f
40% 34% 25% eulav -orientta e d ts rta egie s – nera l y 5 . % 0 So
Cost-plus Competitor- Value-orientated teh lra gets orgna ista ion s ra e tkia ng teh mots
strategy orientated strategy os pih ts icta e d o f approaceh s – but ttha sia d , ts i l
strategy tsuj h fla o f teh .m
% 1 o f respondent s di d not know/ were unclear
s I oy ru pricing ts rta eg y t� of r pru poes ?
s I it esab d on cots , copm etitor s or
In our vie, w this is the reverse of how it eul a v creta e d of r oy ru ctsu oem r? s
should be. A value-oriented approach
may be more challenging to develop an d
implement wo( rking out the true value
of your products and services – not ju st
the cost – to the customer and how thi s
value can differ by segment or purchase
occasion) b ut it is one that will deliver
much better pro�tabilit y over time.
5 Pricing Report Unlocking the potential of pricing
What leads to a pricing strategy change?
The most common reason given for a pricing
strategy change was a new business model or
technology disruption in the market (30%). This was Telco
most noticeable in the Telco sector (38%) folowed 38%
by Media (34%).
Competitor pricing activity was also a signifcant
factor. Unsurprisingly, it was the top trigger in the
Retail sector and Consumer Goods. Media
34%
For Industrial Markets companies, no single factor
dominated, but the most common was a new
business model or technology disruption (23%).
This was also true for Business Services
organisations (19%). Percentage of executives that Retail
Among Sharks, the most common trigger for stated new business model or 34%
a change in pricing strategy was a new business technology disruption was the
model or technology disruption (35%) and most common reason for a
for Dolphins this was 37%. This contrasts to change in pricing strategy.
Turtles where poor trading performance was the Consumer
most commonly reported trigger for a change. 32% Goods
But what happens when a competitor lowers its
prices? Thirty-eight percent of all our respondents
said they lower their prices in response and try to
recover margin through negotiation with suppliers, Industrial
while 15% lower their prices and try to make up Markets
the gap through internal cost savings. In contrast, 23%
a third (35%) say they maintain their prices because
they believe in the differentiation of their product
or service. Business
Services
19%
6 Pricing Report Unlocking the potential of pricing
The profitability prize
Qiu te is mp , ly biil on s o f ponu d s colu d be generta e d trh oug h more efef ctiev Ho w ucm h can pro�tabilit y be ipm roev d throgu h
pricing according to oru respondents .
om re effectiev pricing?
Sixt y percent o f eex cutiev s beil eev teh y colu d improev pro�tabiil t y yb % 5 or
more trh oug h more efef ctiev pricing , na d % 52 beil eev teh y colu d improev yb
%0 1 or more . Tih s i s loew r thna in oru 3 12 0 rus ev y weh n 4 %0 o f respondent s 3 12 0 rSu ev y 5 12 0 rSu ev y
sia d teh y colu d improev pro�tabiil t y yb %0 1 or more but ts i l ev r y is gni�cna t .
Teh re ra e mna y acf tor s ttha colu d be beih n d tih s , ucs h sa a more ts abel
econoim c cil tma e , improev d pricing capabiil ties , na d teh acf t ttha pricing i s
no w on teh bora d agend a of r more compna ie .s
nI terets ing , ly teh ih geh r up teh orgna ista ion oy u go , teh ih geh r teh pro�tabiil t y
increesa expected . tA teh C -el ev ,l 4 %0 o f eex cutiev s in oru rees ra c h beil eev %0 1 o f % 2 1 o f
teh ir orgna ista ion colu d generta e more thna %0 1 improev em nt in pro�tabiil t y respondent s sia d 2 %0 or more respondent s sia d 2 %0 or more
compra e d to % 52 of r la respondent .s C -ius te respondent s ew re %20 more
il ek l y to tih n k ttha a %20 p sul improev em nt in pro�tabiil t y i s pois bel thna la
oteh r respondents .
So , ta teh ih geh ts el ev l in orgna ista ions , teh pricing opportnu it y i s es en cel ra l y 4 % 0 % 0 1 % 5 2 % 0 1
b ut teh es expectta ion s ra e not sylaw being reila es d . Teh priez , sa ucs ,h i s
ts i l out teh re .
sI oy ru orgna itas ion reila is ng teh prot� priez trh ogu h eb tter
pricing ? oH w nam y initita iev s ra e oy u rnu ning ttah cna %07 % 5 % 5 % 5
generta e a % 5 or % 0 1 ipm roev em nt in prot� iba il t? y
7 Pricing Report Unlocking the potential of pricing
Who – if anyone – is in control of pricing?
From our survey, 35% of companies see fnal pricing decisions resting with Final say is most likely to sit with the CEO or Board
the CEO or Board, while a similar proportion (33%) give the pricing reins to
Sales or Marketing, and 28% let Operations or Finance take control.
There is something of a functional bias however, with respondents most likely
to believe their own area controls pricing. This is most prevalent in Sales and 37% 40%
in Marketing, where respondents are 44% and 36% more likely than all other Industrial Markets Telco
respondents to believe pricing responsibility lies with Sales and Marketing.
The only group that is not subject to bias are Turtles. Almost every respondent
in this group is certain that responsibility does not lie in his/her team, which is
a worrying fnding in itself.
22% 37%
It is also interesting to point out that Dolphins are the only group where the
Retail Media
fnal decision on pricing is more evenly distributed across the organisation,
indicating how smaller, newer organisations take a more delegated approach
to pricing authority. Conversely, Sharks are more traditional where the CEO/
board has the fnal say on pricing in 50% of cases. Sectors most likely to have a dedicated pricing team are:
Who controls pricing in your organisation?
78% 52%
In our view, the responsibility for pricing Consumer Goods Media
is typically shared between Marketing,
Finance and Sales, and this is where
the problem starts. The input of each
is shaped by the various departments’
presures, insights and incentives. We 75% 59%
believe it’s time to consider a standalone, Telco Industrial Markets
independent pricing function.
61% 53%
Retail Business Services
8 Pricing Report Unlocking the potential of pricing
The rise of the CPrO – but only in half of companies
Anoteh r ts riking acf tor in oru rees ra c h i s teh ries
o f teh iCh e f Pricing Of �cer (CPr . * O)
Teh prees nce o f a CPr O depend s on teh type o f 69%
orgna ista ion . % 18 o f Dolpih n s na d %8 5 o f Shra sk
Telecommunications
evha a CPr O but of r ru T tel s na d nu T a , teh percentage
drop s to el s s thna .% 0 1
CPrO s ra e mots comom n in eT lco s na d Conemus r
Good s ( 6 %9 na d %6 7 respectiev ly ) wih el isuB nes s
Service s orgna ista ion s ra e el tsa il ek l y )( 3 % 8 to evha
67%
one , of lol ew d yb Retia l )( 3 % 9 – perhap s rus priis ngl y
of r ucs h a price-es nis tiev intsud r. y Consumer Goods
Teh re ra e cel ra is gn s ttha viha ng a CPr O eh lp s to
introudce greta er pricing rigoru . Compna ie s wit h a C PrsO
CPr O ra e %9 1 more il ek l y to esu dedicta e d pricing
os ftraw e na d % 5 1 more il ek l y to trac k price s retla iev are om st
to eulav deil ev re d to ctsu oem r .s coom n 48%
Industrial Markets
oD e s oy ru orgna itas ion evah a PC r O or
eH da o f Pricing ? fI not , y hw not?
39%
Retail
38%
*CPr O or Hea d o f Pricing Business Services
9 Pricing Report nUolncloik nckgi ntgeh tphoet epnotei la not f iparl iocfin pgricing
What makes a good CPrO?
Interestingly, advanced analytical and data-driven This is recognised by Dolphins who place the same
skills ranked as only the third highest skill required level of importance on understanding the commercial bCIneP ohrOualr fo vori feH wteha,e da bl loo cfa oPrmdri.cpianngi etos nleeaedd ptroi chinavge o an
according to respondents (15%). Ahead of that were environment as on analytical skills.
an understanding of the commercial environment
Tuna are mainly focused on understanding the
(41%) and infuence at Board level (24%).
commercial and operational environment and Sharks
Generally, companies with a CPrO recognise (where the CEO and Board have a high infuence on
the need for him/her to have a multi-disciplinary pricing decision) focus the relevance of the CPrO’s
skillset. Companies considering appointing one ability to infuence them.
for the frst time should take note of this – it is not
necessarily just a case of appointing a respected
sales manager or fnancial professional, for example.
iAnbsilgithyt sto a wndo rgka ainc croosmsm biutsmineenst sto u pnritics ianngd s fturantcetgioienss aton dg atathcetirc s Understanding of the operational environment
cWhhaarat catreer itshteic ms ofs at iCmhpieofr tParnicti ng Offcer?
(costs, supply chain, manufacturing, etc.)
Advanced analytical skills and data-driven Understanding of the commercial environment
approach to decision-making (channels, customers, competitors, regulators)
Infuence at Board level
Don’t know
(i.e., with CEO, CFO, CMO, Head of Sales)
50%
40%
30%
20%
10%
10 Pricing Report Unlocking the potential of pricing
% of Total Count of Respondents
