Most companies improved profit margins in 2020, says Simon-Kucher

Fifty-nine percent of companies globally saw improved profit margins, according to Simon-Kucher & Partners’ annual 'Global Pricing Study'. The pricing and strategy consultancy surveyed approximately 2,200 businesses across 36 industries in over twenty five countries.

The profit margin winners were predictably segmented by industry, considering that the majority of margin improvements were attributed to Covid-19 impacts. Industries with the most companies reporting higher margins were software (82%), construction (72%), logistics (68%), chemicals (67%), and internet (67%). More than 60% of utilities, pharma, and telecom firms also reported improved profit margins.

The biggest losers were, unsurprisingly, travel & tourism (19%) and restaurants (18%).

“2020 was a challenging year, but actually the impact of the pandemic was not equally felt across industries. Whilst the headlines tend to be dominated by the losers there were in fact many winners,” said Mark Billige, co-CEO of Simon-Kucher. “The more important question is what drove these margin improvements, and how sustainable they are.”

According to the study, the primary reasons for margin improvement were soaring demand (45%) and decreased costs (34%). Only 21% said arbitrary price hikes were the top reason for margin improvement.

Simon-Kucher notes that pricing is currently an undervalued tool for companies looking to ride out a potentially turbulent economy and expected inflationary pressure. More than two thirds of surveyed firms plan to only increase prices at most in line with inflation, with 22% planning no price increase at all.

“The lack of pricing ambition presents a clear risk for companies of losing ground versus their 2020 position by failing to factor in predicted inflationary increases,” said Billige.

Though the majority of companies said they experienced higher price pressure in the last twelve months (57%), that was actually a reduction over 2019 levels (65%). There were also fewer companies actively involved in a price war (45%) compared to 2019 (57%).

Fewer companies were claiming responsibility for starting a price war in 2020, with only 26% saying so compared to nearly 60% in 2019.

“Companies appear more aware of the dangers of price war involvement, with fewer deliberately initiating them,” Billige said.