Top Corporate Financial and Marketing Executives Expect Limited Pricing Power, Leading to Continued Focus on Cost and Cash Positions, Accenture Study Finds
NEW YORK; Aug. 3, 2011 – Expecting limited pricing power in the near future, a majority of chief financial officers (CFOs) and chief marketing officers (CMOs) are holding the reins tightly when it comes to price competitiveness and increasing costs, according to a new Accenture (NYSE: ACN) study.
While the vast majority (85 percent) of the 1,000 CFOs and CMOs participating in the study expect their companies to grow at a rate equal to or significantly greater than most global growth forecasts, nearly 90 percent see price competitiveness to be a primary strategic issue and expect to continue to maintain or cut costs and build cash positions further. The executives represented companies in eight industries and 12 leading economies in both developed and emerging markets. The study was conducted to gain better insights on how CFOs and CMOs balance pricing, cost and cash management to optimize profitability.
Nearly half of the study participants expect their companies to grow by more than 6 percent annually over the next 18 months (nearly double most consensus forecasts for global GDP growth). Yet, the study also found that continued economic uncertainty has resulted in companies taking a more disciplined approach to growth with a renewed emphasis on sustained cost management and the prudent use of cash to increase revenue opportunities and profits. Additionally, nearly three out of four CMOs surveyed (71 percent) said pricing is now among their companies’ top three strategic priorities.
“It’s different this time,” said Greg Cudahy, managing director of Accenture’s Operational Strategy practice. “In past recovery periods, there has been a greater expectation of the ability to capture price leverage across the board, and a related shift away from cost cutting and cash- position building. It’s clear that in a market of essentially permanent volatility, CFOs and CMOs are staying a bit more reserved in their plans, despite their own expectations for growth.”
Although CMOs were slightly more optimistic (by 7 percent) than CFOs about their company’s ability to sustain price increases in this market, more than two thirds (71 percent) of the combined group believe they will have to maintain pricing, or even drop prices, given the current economic environment. “It’s clear that we are not in a situation where a rising tide will lift all boats when it comes to pricing, commodity pressures or not,” Cudahy said. “More sophisticated, dynamic and granular pricing is required to optimize the supply and demand balance across products, channels, and geographies.”
As in previous studies conducted by Accenture, participants in this study expect major impacts to their growth to result from improved product value, innovation, and promotion across their businesses. The newly released study shows that 88 percent of the executives expect improved competitive positioning from product value, 85 percent from innovation and 83 percent from improved promotion. Yet the majority expects growth increases from these activities to come in the form of volume lift, not pricing across the board.
“The need for improved pricing strategies that balance short-term profits with market share building across the portfolio is clear,” said Cudahy.
CMO participants indicated that their companies had achieved short-term success from pricing strategy and process change, with 65 percent indicating that pricing and promotion programs had measurably impacted profits, and 59 percent indicating market share improvement as a result of already-implemented programs.
Furthermore, the study showed that speed-to-results of these reported programs was very strong. In fact, four out of five respondents indicated that their companies had achieved measurable growth impact in less than 12 months.
However, while well-executed pricing strategies can deliver rapid results, many companies lack the capabilities and tools required to optimize and sustain their pricing performance, according to the study. The majority of CMOs reported having issues with tying corporate plans and sales force behaviors to their pricing strategies, and less than a quarter said their companies had the right enterprise systems in place to manage the execution of their pricing strategies.
“By using some of the cash on their balance sheets to enable their pricing and analytics capabilities with sophisticated, adaptive technologies, companies can greatly enhance their ability to boost profitable growth – and deal with unanticipated economic issues faster” said Cudahy.
This continued pricing pressure, combined with persistent uneasiness among executives about the prospects sustainable global economic growth led virtually all participants – 99 percent – to indicate that their companies would be pursuing some additional level of cost-cutting. While most participants’ companies had focused on cost-cutting in the recent past, more than half said that their programs have been only somewhat successful. This finding was most common among executives in industries facing increased regulatory scrutiny and uncertainty, particularly banking, insurance and pharmaceuticals.
Finally, although 70 percent of respondents indicated that their companies have optimal-to-excess cash positions relative to current business demands, nearly 90 percent have teams in place (some permanent, some temporary) focused on continuing to improve working capital productivity. Roughly one third of the CFO participants indicated the need to continue generating cash to allow for opportunistic investments, increased R&D and/or future operational necessities.
To assess how companies are responding to today’s ever-changing business environment, Accenture surveyed 1,000 senior executives – 488 of which were CMOs and 512 were CFOs. The executives work in the banking, communications, consumer goods & services, energy, insurance, pharmaceuticals, retail and utilities industries in Brazil, Canada, China, France, Germany, India, Italy, Singapore, South Korea, Spain, the United Kingdom and the United States. The companies that employ these executives have revenues of at least $500 million in the United States and Canada; at least $250 million in Europe, and more than $100 million in Brazil, India, Singapore, China and Korea.
Accenture is a global management consulting, technology services and outsourcing company, with more than 215,000 people serving clients in more than 120 countries. Combining unparalleled experience, comprehensive capabilities across all industries and business functions, and extensive research on the world’s most successful companies, Accenture collaborates with clients to help them become high-performance businesses and governments. The company generated net revenues of US$21.6 billion for the fiscal year ended Aug. 31, 2010. Its home page is www.accenture.com.
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