The 2020 Mid-Year Economic Update_long

Pricing, M&A in an Uncertain Economy

When it comes to making decisions in an uncertain market economy, executives sometimes throw out the processes that have brought success during the up times. According to two recent articles from The McKinsey Quarterly, that is the wrong move. Instead, executives should be aware of current market forces while at the same time moving forward under the tried and true principles that have served them well in the past.
 
In its recently posted article, M&A Strategies in a Down Market, McKinsey analysts say that though executives are encouraged to "invest in a downturn," they've found that most executives shy away from doing so in an uncertain ...

When it comes to making decisions in an uncertain market economy, executives sometimes throw out the processes that have brought success during the up times. According to two recent articles from The McKinsey Quarterly, that is the wrong move. Instead, executives should be aware of current market forces while at the same time moving forward under the tried and true principles that have served them well in the past.
 
In its recently posted article, M&A Strategies in a Down Market, McKinsey analysts say that though executives are encouraged to “invest in a downturn,” they’ve found that most executives shy away from doing so in an uncertain economy. The authors of the article chide these executives for this decision, saying “countercyclical investment can separate the leaders from the also-rans.”In one McKinsey study, significantly more divested businesses than acquired in downturns. 
 
McKinsey’s analysis reinforces some of the ideas touched on in MDM’s 2008 Webcast, Distribution M&A 2008 Update: Redefined Value in a Tough Market. Buyers looking for “value acquisitions” are fueling the market.
 
At the same time, managing profitability through pricing is another key in an uncertain economy. In Pricing in a Downturn, McKinsey analysts offer six suggestions on how to keep pricing on track.

  • Watch for sudden shifts in price structure so that you can respond quickly to changes
  • Monitor customer-level profitability in order to target price increases and service level changes without harming the relationship
  • Adjust to changing customer needs
  • Update price sensitivity research
  • Monitor your industry’s microeconomics
  • Study your suppliers

Similar advice was offered in an article that appeared in our Aug. 10 issue, Pricing for Profitability, which encouraged companies to put a pricing strategy and system in place.

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