SINGAPORE--(BUSINESS WIRE)--In light of the recent establishment of the ASEAN economic community (AEC), it is becoming essential for companies to look for fresh avenues to maximize profits. Currently, the ASEAN-5 countries (Singapore, Malaysia, Thailand, Indonesia, and Philippines) leave more than USD nine billion untapped because they hesitate to implement even small price increases. This is the result of the ASEAN Pricing Stress Test 2016 conducted by Simon-Kucher & Partners. The global strategy and marketing consultancy analyzed approximately 1,200 publicly traded companies in the region, focusing on the consumer and retail, manufacturing, oil and gas, construction, and chemical industries. “Companies completely underestimate the huge potential of small price increases,” says Dr. Jochen Krauss, Managing Partner of the Simon-Kucher & Partners office in Singapore.
Potential to more than double profits
Assuming a price increase of two percent, 80 percent of the investigated companies can expect profit growth potential in the double digits. That means 14 percent of the currently unprofitable companies could (re-)enter the profitable zone. But what’s more is that 11 percent of the analyzed companies could more than double their current profits. “Even small adjustments of two percent have an incredible profit impact,” states Krauss. “That’s especially true for companies with a lower profit margin.”
Strongest profit prospects for Singapore and Thailand
A look at country performance shows that Singapore and Thailand are leading with an average potential profit growth of 45 percent, while Philippines forms the tail light with around 30 percent. That means growth potential of 42 percent on average for all ASEAN-5 countries. “That’s too much money left on the table,” says Simone Lambrich, Senior Consultant at Simon-Kucher. “Companies often strive for cost optimization. But they should be aware that, by nature, this has its limits and jeopardizes growth and innovation alike. Price increases raise profits much more than cost reductions.”
The industry perspective underlines how much all companies could benefit from a marginal price increase. The strongest profit lever was determined for chemicals (45 percent), followed by construction (44 percent) and consumer and retail (43 percent). “It’s time that C-levels recognize pricing as the biggest profit lever and systematically approach and strengthen their company’s topline power,” recommends Krauss. “Companies can already start optimizing their margins by reaching for low-hanging fruits. Simon-Kucher supports companies in identifying and implementing suitable pricing and sales measures.”
Dr. Jochen Krauss is the Managing Partner of the Simon-Kucher & Partners office in Singapore. Simone Lambrich is a Senior Consultant at Simon-Kucher.