Can Companies Get Unstuck?
Your story, "Stuck!: How companies cope when they can't raise prices" (Cover Story, Nov. 15), struck home. As a major international company, it is with rare exception that pricing and costs are not our major focus.
Your prescription to abandon discounts, coupled with process and product reengineering, hits the mark. Both provide symptomatic relief for the ailment of "compressing margins." However, to cure the disease, entire industries must retool their balance sheets.
Continuous improvement and an unrelenting drive to reduce costs throughout a company's supply and delivery chain must become the order of the day. Today's customer demands--and deserves--consistent product and the best price we have to offer. Companies that jointly attack the problem will survive, and margins will stay intact. Companies that don't will make for good case studies on how not to succeed.
Steven C. Jacobs
Holiday Inn Worldwide
The article was amusing, but the tables did not support your thesis. Of the 10 industry categories depicted, only "infant and toddler clothes" was experiencing lower prices. The other industries--all more significant--were continuing to raise prices, albeit at a slower rate than in the past. I guess an article titled "How companies cope when they can't raise prices as much as they'd like" doesn't have the same ring.
San Bruno, Calif.
Contrary to a statement in your story, Boeing Co. has not said it is freezing the prices of our commercial jetliners for the next five years.
Our goal in the Commercial Airplane Group is to reduce the cost of building our jetliners over the next five-year period. As those reductions are achieved, we expect to share some of the gains with our customers, some with our shareholders, and to retain some for product development and productivity investments.
Boeing Commercial Airplane Group
Your article did a fine job describing the competitive pressures facing companies worldwide. However, in prescribing strategies for coping with declining margins and eroding prices, the article clearly understated the potential role of information technology.
Modern information technology can do much more than just track customer preferences and target prices. It enables firms to restructure their entire cost base. I am familiar with many cases where information technology has been successfully used to reduce organizational complexity and improve profitability through business reengineering, yield management, just-in-time competition, or other innovations.
Senior managers who do not make information technology an integral part of their business strategy will find their future seriously threatened by competitors who do.
Assistant Professor of
Graduate School of
Letting consumers have the final decision on the real value of the goods companies have to sell is part of the past. The real decision for setting prices no longer rests with the consumer but with a store's buyers.
For many companies, it is the buyers at hypermarket chains who, in their quest for better conditions than their competitors, started a price war among manufacturers and retail giants.
Negotiating with Carrefour, Promod s, er the like is a decisive step, and one that has driven leading manufacturers to a spiral of losses in profitability and to drastic restructurings. The prices of products as diverse as milk, fruit juices, detergents, bathing gels, toothpaste, beer, sodas, and pet foods have been reduced significantly in recent years, and the consumer has had very little to do with it.
The concentration of retail giants in Europe will maintain prices of leading brands at record lows. In the end, the consumer will benefit, and some analysts will mistake this trend, attributing these new prices to consumers and not to the real policymakers: the power of the retail trade.
Trade Marketing Manager
CILESA SME Group
You and Intel Corp. seem to have invented a new term called "value added" in establishing pricing structures. Why not stick to product differentiation? Your article, for the most part, discusses commodity products, where price and availability differentiate one vendor from the other, with or without disinflation.
Vendors who can truly differentiate their noncommodity products are in no hurry to reduce prices, since for the additional price increment, as you would say, they deliver value.
M. Russ Adamian