Why Do Europeans Do Pricing Better?

It is time for U.S. businesses and business leaders to give pricing the respect and resources it deserves

I am one of the fortunate ones who has a foot in both the European and North American continents. I am a native Scandanavian who lives in Los Angeles and runs the U.S. division of one of the leading pricing software companies, Stratinis. As such, I feel I have a unique perch from which to compare how companies in both zones approach the pricing function. And while there’s much to admire about American business, it’s clear to me that European companies, in many cases, lead the U.S. on how to price better. There are several cultural, geographic and structural reasons for this.

International Is a Must

Few European domestic markets are large enough to provide companies with sufficient growth prospects and companies almost by default need to look at international markets. This is especially pronounced in the smaller countries. For instance, companies in the Scandinavian and Benelux nations often look abroad first and then consider their home markets. Conversely in the U.S., companies enjoy a large and largely homogenous market, and can grow to substantial size just servicing their domestic clients and customers.

The almost default international go-to-market strategy of European companies requires them to consider various pricing alternatives more deeply than their U.S. counterparts. They have to consider currency fluctuations (outside the Eurozone), different buying habits, different channel structures, different willingness to pay, different competitive environments, different terminology, different corporate cultures and different regulatory environments. This all means that European companies are more open to pricing fluctuations and more considerate of pricing decisions. European corporations need to spend more time and resources on pricing, and therefore, they develop a deeper insight into what can and must be done with pricing. European companies cannot, like many of their U.S.-based peers, simply wing it.

A Higher Cost Base

European companies, especially in manufacturing or service industries, typically face a substantially higher cost base than U.S. companies.  With an overall higher cost base, it becomes necessary for European companies to look for additional revenues and profits wherever they can. And since pricing acts as a more effective revenue and profit lever than cost control or market share gains, European companies are becoming more skillful in pushing that lever, and are more open to deploying critical, new, diagnostic and monitoring pricing software

A No-Growth Market

While U.S. companies can enjoy a stable and, comparably, growing domestic market, European companies do not have the same luxury. Most markets in Europe grow slow if at all. Some markets grow the wrong way. This also means that, in Europe, companies need to consider other growth strategies. To price better is one of them. This also leads companies to spend more time and spend more resources on pricing in order to eke out growth from existing customers.

Less Quarterly Pressure

U.S. companies typically march to the beat of quarterly earnings. This short-term focus often fosters a corporate culture of quick fixes, and an aversion to risk and experimentation. Since U.S. companies are rarely exposed to the need of looking at pricing as a growth component, pricing is often overlooked in favor of simply adding more customers and increasing market share. In fact, Atenga conducted a study in 2011 of American CEOs that found the vast majority, almost 90 percent,  saw market share gains as their most important profit improvement strategy, while a mere 4 percent said  optimizing price is the best way of increasing profitability.

Summary

While the U.S. market is highly competitive, many U.S. companies are sheltered from the more complex business and pricing realities of the European and other outward-looking, international markets. They can build large, successful business in the relatively simple American market without ever having to face many of the complexities of everyday European businesses. Because of that, the vast majority of U.S. companies dismiss pricing as unimportant, and in doing so, they shoot themselves in the foot given the pricing  function’s large direct impact on business results, profits and increases in shareholder value.  It is time for U.S. businesses and business leaders to learn from their European cousins, and give pricing the respect and resources it deserves.


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