Expecting limited pricing power in the near future, most CFOs and CMOs are remaining reserved when it comes to price competitiveness and increasing costs, a new study says.

Although slashing prices was essential to help firms survive the recession, future high-performance growth will require a more integrated approach that balances costs and price according to market segment, a new study from Accenture says.

Based on a survey of 1,000 chief financial officers (CFOs) and chief marketing officers (CMOs) across eight industries worldwide, the management consultancy’s Going for Growth study reports that 85 percent of respondents expect their companies to grow at a rate equal to or significantly greater than most global growth forecasts. Nearly half expect their companies to grow by more than 6 percent annually over the next 18 months, nearly double most consensus forecasts for global gross domestic product growth.

As plans for growth return to many executive agenda, businesses must reconcile the general consensus that raising prices cannot work in a still-volatile economy with the fact that reducing costs can ultimately hamper a company’s ability to grow.

Expecting limited pricing power in the near future, most CFOs and CMOs are “holding the reins tightly” when it comes to price competitiveness and increasing costs, according to the study.

Nearly 90 percent of respondents see price competitiveness to be a primary strategic issue and expect to continue to maintain or cut costs and build cash positions further. Seventy-one percent of CMOs said pricing is now among their companies’ top three strategic priorities, and more than two-thirds of CMOs and CFOs combined believe they will have to maintain pricing — or even drop prices — given the current economic environment.

“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,” Greg Cudahy, managing director of Accenture’s Operational Strategy practice, said in an announcement of the findings. “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.”

Fortunately, 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 a measurable impact on profits and 59 percent indicating market share improvement as a result of already-implemented programs. In fact, four out of five respondents indicated that their companies had achieved measurable growth in less than 12 months.

However, the responses suggest that while well-executed pricing strategies can deliver rapid results, many companies lack the capabilities and tools required to optimize and sustain their pricing performance. The majority of CMOs reported having issues with tying corporate plans and sales force behaviors to their pricing strategies, while less than a quarter said their companies have the right enterprise systems in place to manage the execution of their pricing strategies.

“Companies face a wide range of challenges in optimizing pricing, including sales execution, inadequate pricing analytics, unclear pricing strategy, inadequate decision support/analytics, and governance and accountability incentives,” according to the study.

This continued pricing pressure, in addition to executives’ persistent unease about the prospects of sustainable global economic growth, led virtually all participants (99 percent) to report that their companies would be pursuing some additional level of cost-cutting. While most respondents’ companies focused on cost-cutting in the recent past, more than half said their programs have been only somewhat successful.

In response to continued uncertainty, companies are 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.

According to the study, CMOs and CFOs expect major impacts to their growth to result from improved product value, innovation and promotion across their businesses. Accenture’s new study shows that 88 percent of executives expect improved competitive positioning from product value, 85 percent from innovation and 83 percent from improved promotion.

However, the majority expects growth increases from these activities to come in the form of volume lift, not pricing across the board.

“To capitalize on growth opportunities, companies will need to address some shortcomings in their pricing capabilities,” the study concludes. “…While enterprises have experienced some success with pricing initiatives, their pricing capability levels remain average at best and lack full integration into key tools across the organization.”

See also: What to Do When Competitors Undercut Your Prices

Resources

Going for Growth: The Role of Price and Cost in Driving High Performance in a Volatile Global Economy
Accenture, August 2011

Top Corporate Financial and Marketing Executives Expect Limited Pricing Power…
Accenture, Aug. 3, 2011