Monday 18 December 2017
 
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ANALYSIS

Logistics ... only 18 per cent of all new products
achieve their profit targets.

Logistics suffering price pressure, product flops

BONN, Germany, June 15, 2015

The logistics sector seems to have a hard time when it comes to raising prices in their customer base, a report said, noting that only 18 per cent of all new logistics products and services are successful.

Logistics firms succeed with only 40 per cent of their planned price increases, added the recent special analysis of the Global Pricing Study 2014, conducted by the global strategy consulting firm Simon-Kucher & Partners.

Almost 80 per cent of the companies are experiencing higher price pressure compared to last year, the study said.

Logistics providers say these poor results are due to fierce competition and the fact that customers have more negotiating power now. As a result, the percentage of logistics companies that only compete on price is twice as high as in other industries.

Blame is quickly placed on the competitors, although the inability to raise prices is generally self-inflicted, said Dr Philipp Biermann, Partner at Simon-Kucher.

"Logistics firms often lack confidence and negotiation tactics. They are frequently at the mercy of their customers' professional purchasing departments. Recognizing the value of your services, developing a negotiation strategy and turning this into an implementable price -- logistics managers must get this into their heads!" said Dr Biermann.

Price pressure and new product flops

The combination of external pressure and low confidence in their own performance has caused almost two-thirds of the respondents, as they report, to suffer from price wars. All of them, however, say that it was the competition, not themselves, who started it.

"The phenomenon that companies make concessions to their customers in the heat of the moment that they actually cannot justify is very widespread in the logistics industry. In the process, they often don't see the signals that their dumping prices give to the competition. They don't grasp that these 'isolated cases' ultimately have a negative impact on the market price level," explained Kornelia Reifenberg, senior director at Simon-Kucher.

When it comes to launching new products and services, the logistics industry has also been struggling: Only 18 per cent of all new products achieve their profit targets, which is the lowest rate that has ever been recorded (considering that in all industries it's 28 per cent).

And 35 per cent of logistics companies haven’t even been able to reach the anticipated profit targets for any of their new products (compared to the overall percentage of 24 per cent), although these new products and services could well be used to shift the focus of negotiations away from the price and towards value, Reifenberg said.

Know your products, communicate customer value

How can logistics providers successfully compete against low-priced competitors, implement price increases on the market and establish new products?

Dr Biermann urges them to carefully differentiate customers and services: "One-size-fits-all products are doomed to failure.”

It would be better, he said, to proactively offer several service options to make customers recognize the values of the different offerings.

"Cheap services are possible, but they require a narrower service breadth -- for example when it comes to flexibility, payment terms or goodwill agreements. If customers want these premium services, then they should also pay for them,” he added.

“This is how to turn a one-size-fits-all commodity into one that is tailor-made to meet a customer's specific needs. It’s a give and take situation,” said Dr Biermann.

"By all means, customers should have the freedom to choose." And they should get the opportunity to avoid effective price increases, e.g. by accepting alternative loading/delivery times or larger shipment volumes,” he added. – TradeArabia News Service




Tags: New Products |

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