Ineffective Product Pricing Costs Semiconductor Companies Billions Annually, According to New Accenture Survey
Three-quarters of semiconductor executives blame outdated technology infrastructure
NEW YORK; MARCH 1, 2007 – The world’s semiconductor companies may be losing billions of dollars in annual revenue because of ineffective product pricing management, according to Accenture’s (NYSE: ACN) analysis of a new study it sponsored.
Accenture’s survey of sales executives, at the vice-president level and above, from 35 of the world’s largest semiconductor companies found that more than 90 percent of respondents said their companies have formal organizational roles and responsibilities for setting and approving prices. Yet, approximately three-quarters of them (77 percent) indicated that they “treat each deal uniquely” and more than half of them (56 percent) said they “use ad hoc discounting practices” sometimes or often.
“Our analysis of this data suggests that for every billion dollars in revenue, the average semiconductor company is losing between $16 million and $23 million in sales annually because of ineffective pricing management,” said Alan Moore, a senior executive in Accenture’s Semiconductor Industry practice.
The study also found that 40 percent of respondents acknowledged that their companies do not understand the cost to service different products, channels and segments. A contributing factor may be that 38 percent of respondents indicated they “often” use different price points for the same product in the same region. Recognizing these deficiencies, the most urgent item on the industry’s 2007 pricing agenda – nearly doubling the rate of any other item – is improving the ability to measure profitability of each sale.
“There’s a bit of irony in one of the world’s most technically sophisticated industries losing billions of dollars annually by simply neglecting the latest advances in business process technologies,” said Moore.
Despite billions of dollars in annual revenue losses related to ineffective pricing strategies, 74 percent of respondents acknowledged that the source of the problem is that their existing pricing management systems need improvement. Of those who said their systems need improvement, 50 percent indicated that their pricing legacy systems are inflexible and 31 percent say their pricing systems are poorly integrated with other business systems.
The survey also found that 40 percent of respondents said their companies do not have all of their pricing data residing in a central system that is accessible throughout the company. Those that do have a centralized pricing system see this as the most important aspect of their approach to pricing.
“When semiconductor companies grew between 30 to 50 percent every year, the loss of a few million dollars annually due to pricing inefficiencies went unnoticed,” said Moore. “Today’s single-digit growth, razor-thin product margins and continuously shrinking product lifecycles demand that manufacturers use technology to enable them to set – to the penny – an optimal price for every product every day for every customer.”
Currently, about half (49 percent) of the companies surveyed have a pricing system linked to enterprise resource planning (ERP), customer relationship management (CRM), supply chain, financial and manufacturing systems. In terms of process inefficiencies, 63 percent conduct price quoting and execution manually, and 77 percent rely upon spreadsheets to compensate for pricing system shortcomings.
“Regardless of business model or product portfolio, in today’s environment just about every semiconductor company should be looking at pricing management as a source of competitive advantage,” said Lloyd Kaplan, chief operations officer of iSuppli, a leading global electronics research firm. “The best-in-class companies are focused on optimizing price management and are doing so with three elements in mind: organizational structure, geographic awareness and tools and benchmarking to provide the right information throughout the complete pricing process.”
While 20 percent of companies consider their pricing management capabilities “among the best in the industry,” they aren’t resting on their technology laurels. Respondents indicated that the “best” are equally as likely as their “ineffective” competitors to undertake new pricing management improvements in 2007.
The research was fielded by The BPRI Group and was initiated in July 2006 and completed in November of 2006.
For more details of the study, please visit www.accenture.com/semiconductor.
Accenture is a global management consulting, technology services and outsourcing company. Committed to delivering innovation, Accenture collaborates with its clients to help them become high-performance businesses and governments. With deep industry and business process expertise, broad global resources and a proven track record, Accenture can mobilize the right people, skills, and technologies to help clients improve their performance. With approximately 146,000 people in 49 countries, the company generated net revenues of US$16.65 billion for the fiscal year ended Aug. 31, 2006. Its home page is www.accenture.com.