Falling prices mark out `losing' sectors
Wednesday 17 February 1999
Although general price deflation in the UK is unlikely, falling prices have become a reality in certain sectors, according to the business regeneration group at PricewaterhouseCoopers (PwC), the accountancy firm. Indeed, the group believes the UK stock market is becoming sharply divided between "deflation losers" and "deflation winners". Steel, oil and basic chemicals, along with glass, paper, textiles and agribusinesses, are among the losers. Telecommunications, information technology and pharmaceuticals are among the winners.
All of the evidence suggests that the deflationary state is likely to be permanent or, at least, long-lived.
Bruce Gregory, a director of the group, said that the difficulty was being exacerbated by some managers' apparent refusal to accept the conditions. "All too frequently" he and his colleagues were shown projections that featured revenues growing, margins growing and prices increasing.
Mr Gregory said that having spent their whole working lives in a period of inflation, managers could not adjust to a situation in which this was no longer the case. Although PwC highlights certain sectors that fall into the losers' or the winners' camps, the dividing line is not precise. An examination of the evidence indicates that service is often the differentiator.
As recent results have shown, service organisations have seen strong growth in revenues at a time when other businesses have suffered. But service can be added to even hard-core manufacturing operations with a view to maintaining prices and improving revenues.
Mr Gregory pointed out how General Electric of the United States did this by offering training and consultancy when supplying power generators. "This has the double effect of giving a distinct competitive advantage and growing revenues."
Another way Mr Gregory sees companies using service to protect themselves in a deflationary environment is to concentrate constantly on customer satisfaction. This enables companies to compete on something other than price. Otherconditions that enable companies to be "deflation winners" include:
Exploiting a critical asset that is in short supply - for example, the shortage of skilled staff in many industries helps explain the success of consultancies, particularly in IT;
Developing intellectual property - for example, patent protection in the pharmaceutical industry has contributed to the strong performance of this sector;
Differentiating through product performance or design - for example, Gillette and Colgate have both been able to raise prices and gain market share through introducing products offering superior value;
Compensating price decline with volume growth - for example, Vodafone is off-setting falling prices with rapid gains in sales;
Outpacing falling prices with lower costs.
Mr Gregory said that for companies in the "loser" bracket, only "swift and far-reaching change offer a remedy". They should restructure capacity through a mixture of acquisitions, swaps, disposals and exits, reposition themselves as cost leaders through innovative business systems and shift to niches where prices are supported by unique value.
- 1 Nigel Farage: Me vs Russell Brand on Question Time – he's got the chest hair but where are his ideas?
- 2 Harry Potter fans can apply to the Hogwarts-inspired College of Wizardry
- 3 Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
- 4 Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
- 5 Orange Wednesdays are no more
Weather bomb in pictures: Storms cuts power for tens of thousands – and snow is on the way
Jessica Chambers: 19-year-old woman 'doused with lighter fluid and burned alive' in the US
Russell Brand calls Nigel Farage 'poundshop Enoch Powell' in BBC Question Time debate
Russell Brand was rendered speechless on Question Time by this man
Fury at Airbus after it hints the super-jumbo may be mothballed
Disgruntled RBS worker writes hilarious open letter to Russell Brand after anti-capitalist publicity stunt leaves him hungry
Shock poll shows voters believe Ukip is to the left of the Tories
Nigel Farage's approval rating hits 'record low' as popularity suffers in wake of Ukip sex scandal
Nigel Farage defends Kerry Smith 'ch***y' comment: 'If you are going for a Chinese, what do you say you’re going for?'
Ukip candidate jokes about 'shooting peasants' in racist and homophobic rant
Pakistan school attack live: Taliban kill at least 132 children in 'horrifying' massacre
iJobs Money & Business
$200 - $350 per annum: Carlton Senior Appointments: Managing Producer Office...
$125 - $225 per annum: Carlton Senior Appointments: San Fran - Investment Advi...
Up to £70,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...
Up to £65,000 per annum + benefits: Sheridan Maine: Are you a qualified accoun...