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In a study recently conducted by Simon-Kucher & Partners, a global strategy consultancy, less than 35% of planned price increases are actually implemented by companies. This rate dropped from around 50% in 2012.
Within a company, managerial accountants play a central role in the decision-making process. After our lecture on managerial accounting, I was able to connect the findings of this study with the responsibilities that managerial accountants bear within their respective organizations. According to the study, companies are failing to reach target profits for new products and struggling to increase prices on existing products to generate a higher return. This is an issue that managerial accountants would be familiar with. To maximize profit, products and services must be priced appropriately. In order to do this, multiple factors including competition, industry trends and costs must be thoroughly examined. Managerial accountants must collaborate with and unite other departments in the price determination process, so that essential information and data can be attained for further analysis. Only then can the viability of a pricing decision be determined.
In this particular example, businesses are engaging in ‘price wars’ with competitors, which makes planned price increases difficult as companies are unwilling to risk their current position in the market. This rationale for reneging on a price increase has considerations concerning strategy and positioning. In response to the scenario above, a managerial accountant would likely have collected data about its close rivals to conduct a competitor analysis, so that the tactics of their direct competitors can be understood. Ultimately, this provides management with the information and tools necessary to make a new strategic decision (like holding back on a price increase) that can potentially adjust company activity.
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