Suppliers fail to achieve desired price increases

30 August 2011

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30 August 2011 | Adam Leach

Competition between suppliers means almost half fail to increase prices by as much as they aim to.

According to TheGlobal Pricing Study 2011, published today by consultancy Simon-Kucher& Partners, 47 per cent of companies fail to achieve their intended price increase. Some 36 per cent of businesses were able to raise prices to 75 per cent of their original target.

As a result vendors were warned that raising prices in line with inflation – the strategy of 68 per cent – could be “fatal”, as they are unlikely to be able to negotiate those increases and risk losing profit.

Georg Tack, CEO at Simon-Kucher & Partners, said: “It’s fatal to use the inflation rate as a benchmark when you take into account that the majority of companies are weak in price implementation. This won’t be enough. They’ll probably end up paying the difference.”

The study also found that as a result of not being able to charge desired prices, company profits are being cut by 25 per cent. The report called on companies to set prices to boost profit, rather than to increase sales volumes of market share. It also stressed the need to price new products or services accurately in the marketplace, and to make staff better informed about how pricing is calculated.

Earlier this month, a report by the Hackett Group found that procurement departments were not prepared to deal with the current volatile inflation rates. More proactive companies are forecasting prices and hedging risk by adapting contract length, purchasing volumes or inventory levels. But few companies surveyed reported having a clear direction or policy on how to deal with volatile prices.

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