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Australian businesses to raise prices

arrow, up, chart,Retail and consumer goods companies are the most inclined to raise prices in the next 12 months, a study by KPMG Australia has revealed.

The Australian Pricing Survey 2015, which covers 161 companies across a range of sectors, showed that nearly two thirds of Australian businesses intend to put up their prices in the next year to boost profits, with retail/consumer goods sector companies leading the way, at 71 per cent.

This was followed by  business services (67 per cent); diversified industrials (63 per cent);  technology, media and telecommunications (TMT) 61 per cent; and automotive (50 per cent).

While this is the case, most sectors admit it will be difficult to achieve the material price increases they want for at least another year, as statistics show that companies on average achieve just over half of their intended price hikes.

The survey also revealed that just 13 per cent of companies had formally reviewed their pricing strategies in the last two years. Nearly a third of senior managers did not have pricing as a top priority, while almost half were unclear who exactly was responsible for setting and managing prices in their companies.

“The lack of prioritisation and clarity internally over responsibilities in this key area is perplexing. It really should be on the C-suite agenda, and in fact those that do, tend to enjoy higher average margins than others. That 10 per cent extra profit opportunity, which on average, companies felt they could be achieving, seems eminently reasonable. But it will only come about if they approach pricing in a much more strategic approach,” said Ronan Gilhawley, partner in charge of strategy, KPMG Australia

Pricing strategies, the report showed, covered a variety of intended outcomes. The most popular (55 per cent) driver was to maintain profitability. The next most common were defining customer solutions and pricing them effectively; ensuring cost increases were passed on to customers; and getting paid appropriately for the value enjoyed by customers for the goods or services. The fifth biggest driver was to maintain control over pricing.

Key survey findings included:

  • Average planned price increases were: TMT 7.3 per cent; business services 5.8 per cent; industrials 5.7 per cent, retail/consumer 3.4 per cent and automotive 2.8 per cent.
  • The most successful sector in passing on previous price increases to customers was the automotive industry (70 per cent); followed by diversified industrials (56 per cent); business services (55 per cent); retail/consumer groups (55 per cent) and TMT (40 per cent).
  • A majority of companies noted significant pricing pressures in the local market over the past two years, with a high prevalence of price wars suggesting competitive factors are influencing pricing decisions – more so than in other markets KPMG has surveyed.
  • Most businesses (53 per cent) feel they will be unable to pass on material price increases of 5 per cent or more in the next 12 months. Only 11 per cent had managed to do so over the past year. A surprisingly high 16 per cent thought they would never be in a position to do so.

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