Four out of five companies globally have made investments in technology to change business models and drive revenue but only a fraction have achieved topline growth as a result, according to a new report.
"Companies whose digitalization initiatives didn't make an impact on their top lines often failed to recognize the value of technology or didn't properly integrate a dedicated digital lead into their existing organizational structure," said Philip Daus, Partner at Simon-Kucher & Partners. "They also tended to invest in the wrong digital initiatives."
The Global Pricing and Sales Study (GPSS) by global strategy and marketing consultancy Simon-Kucher & Partners surveyed 1,925 companies across major industries in over 40 countries. It captured a comprehensive picture of their pricing and digital strategies, as well as their overall business environments.
"Based on our findings, we believe CEOs and C-suite decision-makers should focus on opportunities to monetize their digital products and optimize prices using big data," Daus said. "These were the two digitalization objectives that we found produced topline growth most frequently—but were also among the least popular. More broadly, CEOs who are investing in digitalization should recognize the value in technology, ensure they have a strategy in place, and focus on topline results rather than simply cutting costs."
The GPSS also found that:
Companies who succeeded at digitalization were twice as likely to start costly price wars - Digitalized companies that reported increases in topline growth from digitalization were twice as likely as others to initiate price wars. One possible reason for this is that more accurate pricing and improved cost information results in overconfidence that price wars can be won. Another explanation is that management teams at digitalized companies tend to be younger and less experienced, making them more aggressive on pricing. Daus noted that "in most price wars, there is only one winner: The customer. So it is important to have a well-thought-out digital strategy to not let digitalization become a curse."
Pricing pressure will continue to increase – The top three drivers of increased pricing pressure identified by the GPSS—low-price competition, increased customer negotiating power, and increasing price transparency—can all be linked to digitalization. This means that digitalization can be a growth risk and may lead to price pressure.
Even industries with above-average digitalization investment such as Retail are missing the mark – "Digitalization investments have been led by several pure online players," said Susan Lee, Partner at Simon-Kucher & Partners. "This has forced traditional brick and mortar players to rethink their strategy as they struggle to maintain consumer loyalty in a world where shoppers are exposed to more choices and information than ever."
Only 18 percent of companies were "digitalization heroes" who transformed their business models with digital technologies the right way – Companies who invested in digitalization and successfully drove topline impact were identified as "digitalization heroes." These companies employed 3.75 times more people in full-time pricing-related roles, had 28 percent higher pricing power, and outpaced the market by 37 percent in EBITDA margin. However, only 18 percent of companies fit this category, showing that a wide majority of businesses could benefit from following the practices set by these exemplary companies. "These digitalization heroes can be considered best-in-class," said Soper. "They act as role models for the entire market."
The study was fielded in collaboration with The Center for Pricing at the Simon Business School, University of Rochester; and Z. John Zhang, Professor of Marketing at the Wharton School, University of Pennsylvania.