Why Europeans Do Pricing Better

Per Sjofors
Sep 5, 2018 · 3 min read
Presenting about pricing

I am one of the fortunate ones who has a foot in both the European and North American continents. I am a native Scandinavian who lives in Los Angeles and runs the US division of one of the leading pricing software companies, Atenga. As such I feel I have a unique perch 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 US 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 specially 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 US, companies enjoy a large and largely homogenous market and can grow to substantial size just servicing customers 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 US 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. They need to spend more time, spend more resources on pricing and this develops in European corporations a deeper insight into what can and must be done with pricing. European companies cannot, like many of their US 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 US 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 have become more skillful in pushing that lever and are more open to deploying critical, new, diagnostic and monitoring pricing software.

A slow growth market:

While US 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, spend more resources, on pricing in order to eek out growth from existing customers.

Less quarterly pressure

US companies substantially 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 US companies have rarely been 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, in a 2011 study by Atenga of American CEOs found that the vast majority, almost 90% in fact, saw market share gains as their most important profit improvement strategy and a mere 4% said optimizing price is the best way of increasing profitability.

Summary

While the US market is highly competitive, many US 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 businesses 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 US companies dismiss pricing as unimportant and in doing so they shoot themselves in the foot given the pricing functions large direct impact on business results, profits and increases in shareholder value. It is time for US businesses and business leaders to learn from their European cousins and give pricing the respect and resources it deserves.

Per Sjofors

Founder and Cheif Scientist

Atenga Insights

Per Sjofors

Written by

Per is an author, speaker, and authority on all things pricing and the Founder of the international predictive pricing group Atenga Insights.

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