Tech

Problems with Pricing

Finance chiefs need to tweak their pricing, but many lack the visibility they need to do it right, says a new survey.
Kate O'SullivanAugust 10, 2011

With input costs surging, hungry competitors circling, and concerns about soft customer demand leaving little room for mistakes, finance chiefs are struggling to maintain their margins. A new study from Accenture finds that while CFOs are confident about their ability to affect the cost part of the margin equation — they plan to do more cutting in the months ahead — when it comes to the price part of the equation, many lack the analytical tools to figure out how, when, or whether to raise prices.

“Even though there are rising commodity prices, the vast majority [of executives] just don’t believe that they’re going to be able to push those prices through to their customers,” says Greg Cudahy, the managing director of the operational strategy practice at Accenture who oversaw the study.

A robust 70% of the 1,000 finance and marketing executives surveyed reported their companies had an “unclear” pricing strategy. About the same — 69% — said they lacked pricing analytics, while 64% said they had inadequate decision support tools. More than a third of respondents said their pricing tools tended to be manual and fragmented. Even most of those with automated tools said their various bits of software were not integrated.

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The lack of effective analytical tools may have something to do with the widespread uncertainty about pricing strategy. “What companies have to do is really understand what people do or don’t value. That requires a very specific level of analytics and a rigorous ability to execute,” says Cudahy. “It becomes way more than one person with a spreadsheet can handle.” To raise prices selectively and avoid alienating customers, “they have to be able to vary their prices in a much more adept fashion, and a lot of organizations just aren’t prepared for that. A lot of companies look at price increases across the board,” he says.

Interestingly, business- unit leaders and marketing staff seem to be the most influential groups in determining a company’s pricing. While both of these groups were “always” involved in price setting about 70% of the time, finance chiefs were only consistently involved at 52% of companies surveyed. CFOs in the survey, perhaps not surprisingly, were much less optimistic than their marketing colleagues about their companies’ abilities to maintain their pricing.

 

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