Against a complex economic backdrop, a new study by KPMG UK has found that that nearly half (44%) of UK businesses are struggling to set the right pricing strategy, potentially leaving billions of profits on the table. This study “Unlocking the Potential of Pricing” is based on 300 executive interviews from companies across various industries in the UK.
Robert Browne, Partner at KPMG in the UK, comments: “Our research identified four categories of organisation based on the sophistication of their pricing. Two categories are largely ignoring pricing or, at best, reacting to competitors’ pricing actions. The other two, however, are proactive and investing in pricing as a strategic capability. We are starting to see a significant gap between those who really understand pricing and can take advantage of competitors who do not. To illustrate, 60% of companies in our survey have created a dedicated pricing team or function whereas 40% have not, or don’t know, and two thirds have invested in some form of pricing tools whereas a third have not.”
In addition, the most common reason given by UK companies for changing their pricing strategy (30%) was when challenged by new disruptive technologies and business models – in other words, when they are forced to take action. Compounding this issue, over half the companies surveyed admitted they lower prices in response to a competitor price cut and try to recover margin through actions on cost; only a third said they defend their prices because they believe in the differentiation of their products and services.
Interestingly, another area where no clear best practice emerged is who should be in control of pricing decisions. From the survey, 35% of companies see final pricing decisions resting with 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. However, the report found that many companies are starting to recruit Chief Pricing Officers or Heads of Pricing to manage pricing across the functions. The presence of this role was dependant on the sector but were most common in telecommunications and consumer goods companies with 69% and 67% respectively having such a role in their business.
Despite the varied level of investment in pricing capabilities, the research showed that companies may be losing out on substantial profits with 60% of respondents saying their companies’ profitability could be improved by 5% or more with more effective pricing and 25% believing they could improve profitability by 10% or more.
“Those companies taking control of their pricing capabilities and setting prices based on value rather than reacting to what their competitors are doing, will deliver much better profitability over time. With a future likely to be characterised by more dynamic pricing, it’s clear that companies on the front foot with their pricing strategy and capabilities will be the winners.”
For further information please contact:
Jess Liebmann, KPMG Corporate Communications
T : + 44 (0) 207 311 3245
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KPMG Press office
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KPMG LLP, a UK limited liability partnership, operates from 22 offices across the UK with approximately 12,000 partners and staff. The UK firm recorded a revenue of £1.96 billion in the year ended September 2015. KPMG is a global network of professional firms providing Audit, Tax, and Advisory services. It operates in 155 countries and has 174,000 professionals working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.
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