Coopers & Lybrand L.L.P. finds less than one percent price increase among America's fastest growing companies; "What price-inflationary pressure?".

NEW YORK--(BUSINESS WIRE)--Jan. 10, 1995--As the Federal Reserve Board has been driving up interest rates to "control" inflation, America's fastest growing companies have been holding the line on prices. In the past 12 months more than half (53 percent) made no price changes or only decreased prices. And the composite net impact of all pricing actions for all companies studied resulted in less than a 1 percent increase (+0.71 percent) over the past year. These are the results of the latest Coopers & Lybrand "Trendsetter Barometer" survey, released today.

Most Price Increases Offset By Decreases

According to the survey, 38 percent of growth companies were not involved in a pricing change, excluding temporary price promotions, during the past year; 15 percent decreased prices only; 35 percent increased prices only; and 12 percent were involved in both increases and decreases.

Among the companies that raised prices, few did so for their entire line or most of their products or services. Overall, 21 percent of all growth company products and services were impacted by price increases, which averaged +9.11 percent. The composite price increase for all "Trendsetter" companies over the past 12 months was found to be less than 2 percent (+1.89 percent).

While fewer growth companies decreased prices than increased them, the average size of the decrease for affected items was larger (-13.97 percent). Overall, nearly 9 percent of all "Trendsetter" products and services were impacted by price decreases, and the composite price decrease for all "Trendsetter" companies was found to be slightly more than one percent (-1.18 percent).

According to George Auxier, national director of entrepreneurial advisory services for Coopers & Lybrand L.L.P., "Clearly, for all the price changes reported, these growth businesses have been selective in their pricing decisions, and their revenue growth has not been largely dependent on upside, inflationary pricing."

Growth company CEOs reported that for price-adjusted items, the last price increase occurred a median of two years ago, whereas the last price decrease for the same items was more recent, a year ago.

Price Changes Directly Impact Growth Of Revenues And Margins

Companies engaged in price adjustments over the past year reported 28.1 percent revenue growth in 1994, nearly 8 percent higher than for firms taking no price actions. Little difference was found between those increasing prices only (30.6 percent growth), and those decreasing prices only (29.5 percent growth). However companies that both raised and lowered prices fared differently: their growth rate of 19.2 percent was significantly below the norm. According to Auxier, "These firms may be squeezed by extremely competitive price pressures for some items, and may have tried to compensate by selectively raising prices too high for other items."

Gross margins of "Trendsetter" companies have been sensitive to price adjustments: 47 percent of price increasers had improved margins over the past year, but this was the case for only 31 percent of price decreasers. Overall, three-fifths of those whose gross margins were up this past year were involved in price increases. Nearly half (48 percent) of the price decreasers said profitability was a potential barrier to growth over the next 12 months, compared to only 29 percent of the price increasers.

Market Forces Trigger Pricing Decisions

Changes in pricing for key growth company products and services are generally not triggered automatically at pre-planned time intervals: only 13 percent of "Trendsetter" CEOs report this is the case.

Those that decreased their prices cite several prevailing market forces as the motivation: downward competitor price adjustment (76 percent), customers demanding permanent price rollbacks (36 percent), and customer pressures for quantity discounts (35 percent). An above-average number of CEOs also report involvement with re-engineering current products or services in order to regain price leverage.

"Growth companies that have decreased prices over the past year tend to be larger firms in strong-growth industries, which are competing vigorously to maintain high revenue momentum, but whose margins are being squeezed by the actions of customer and direct competitors," notes Coopers & Lybrand's Auxier. "Yet these firms are still optimistic about their 1995 growth. Many are planning major new product development initiatives and the majority are involved in exporting. They are not standing still, despite their margin pressures."

The majority of growth companies that have increase prices (54 percent) cite competitor price adjustments as a motivating trigger. Overall, however, price increasers are somewhat more opportunistic than reactive. They tend to be motivated by factors such as: need for better profit margins in today's environment (48 percent), inflationary pressures on key components or ingredients (37 percent), pressure for increased employee wage and benefits packages (30 percent), or seizing opportunities related to shortages of competitive products or services (26 percent).

Pricing Strategy Is Opportunistic For New Products

Very few fast growth company CEOs (12 percent) conduct research studies with potential end-purchasers as a part of their fundamental pricing philosophy. Rather, they are most likely to mention the following attributes as most important in determining the base price of their important new products or services:

Perceived value or worth to the customers 65%

Pricing for directly-competitive items already in the marketplace 58%

Uniqueness of product or service attributes                        51%
A "cost-plus" approach                                             43%

"In the absence of reliable testing for new product price elasticity," notes Auxier, "pricing appears to be driven by margin opportunities and the existing competitive arena."

Coopers & Lybrand's "Trendsetter Barometer" is developed and compiled by the firm's Entrepreneurial Advisory Services group with assistance form the opinion research firm of Business Science International. At each Coopers & Lybrand office, an Entrepreneurial Advisory Services team is available to serve the needs of growing and midsize companies.

One of the world's leading professional firms, Coopers & Lybrand L.L.P. provides services for enterprises in a wide range of industries. The firm offers its clients the expertise of more than 16,000 professionals and staff in offices located in 100 U.S. cities and, through the member firms of Coopers & Lybrand International, more than 66,000 people in 125 countries worldwide.

CONTACT: Coopers & Lybrand L.L.P.

             Maggie O'Donovan Bolton, 212/536-3174
              or
             Mel Tarr, 212/980-7552