How many companies have pricing processes in Latin America?

There is increasing talk about pricing strategy—pricing—in Latin America. Until 2012, very few companies in the region reported actively working on this issue. However, following the global trend, more and more companies have started processes to formalize their pricing management. But how many companies are actually doing this? How formal and systematic are their processes? Are there differences in development by sales level or types of markets and industries? To answer these questions, among others, PREXUS conducted a study of companies in the region, including companies of all sizes, industries, and economic activities. The results make it clear that strategic pricing management is still in its early stages in Latin America.

Large companies and distributors
Only 1.4% of companies report having formal pricing management processes. Although 12% of large companies—with sales greater than US$50 million/year—report having formal pricing management processes, they represent only 3% of the Latin American business base. Of the remaining 97% of companies—SMEs—only 1% have formal pricing processes.

The majority of companies reporting formal pricing management processes are commercial companies. This makes sense because while an average manufacturer must manage a portfolio of fewer than 1,000 SKUs, a typical distributor must make decisions about more than 10,000 products or services. Likewise, the study showed that companies operating exclusively in consumer markets are four times more likely to have formal pricing processes than those operating in industrial markets.

An interesting finding of this study is that for every company that reports having a formal pricing management process, there are three others that claim they are not leaving money on the table. This means that, in total, 4% of companies in the region are confident they are not missing out on value capture in their economic activity. This group is primarily represented by distributors of products or services, half of whom feel confident they are not leaving money on the table. Again, this result makes sense, considering that most commercial companies believe their role is simply to apply a mark-up on the purchase price from their suppliers.

They don’t have it, but they are concerned
Although the vast majority of companies in the region currently lack a formal pricing management process, there is growing awareness of the need to work on it—85% of companies reported that pricing decisions are generally a concern for business managers. This level of awareness is present across companies of all sizes, sectors, and economic activities.

In summary...
While the development level of formal pricing processes is still very low in Latin America, more and more companies are allocating resources to implement systematic processes for making pricing decisions. The pioneers have been large companies distributing products or services. Companies that have implemented value-based pricing methodologies have experienced results 5%-15% higher than the rest of the companies in their sector.