Four out of five companies globally (81 percent) have made investments in "digitalization"––investing in digital technologies to change business models and drive revenue—in the past three years, yet only one out of four (23 percent) have achieved topline growth as a result.
In other words, the digitalization efforts of three out of four companies have failed, according to the latest survey released today by Simon-Kucher & Partners, the world’s leading pricing strategy consultancy.
"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 Mark Billige, the UK Managing Partner at Simon-Kucher & Partners. "They also tended to invest in the wrong digital initiatives."
"Many companies are investing heavily in digital transformation programmes, but their efforts ultimately didn’t bring in more revenue. Often this was because they failed to recognise the full extent of benefits that the technology brought to their customers and so priced their offering too cheaply. Many didn’t create a dedicated digital lead to champion the initiative and help navigate it through the complex organizational structures and resulting internal politics,” said Mark Billige, the UK Managing Partner at Simon-Kucher & Partners. "They also tended to invest in the wrong digital initiatives."
The Global Pricing and Sales Study (GPSS) is undertaken biannually, and this year involved surveys of 1,925 companies across major industries in over 40 countries. It captured a comprehensive picture of their pricing and digitalization strategies, as well as their overall business environments.
Dr. Peter Colman, Partner at Simon-Kucher & Partners added: "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. These were the two digitalization objectives that we found produced topline growth most frequently—but were also among the least popular. Currently there is too much emphasis on efficiency and cost cutting rather than on growing revenues.”
The study is available for complimentary download here.
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.
Billige 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 those in retail are missing the mark – "Digitalization investments have been led by several pure online players," said James Brown, 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 greater price transparency than ever before."
- 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 James Brown. "They act as role models for the entire market."