The corporate development group of a global science and technology company with $20 billion in sales. The group considers pricing power a key criteria among potential targets.
The client was evaluating the potential acquisition of a company that provides integrated product and service solutions to the agriculture sector. It wanted to better understand pricing structures and future trends for the target’s portfolio of solutions.
Approach and Key Findings
The project was broken into two parts whereby one track evaluated four existing country markets that had varying levels of regulations and subsidies. Each of these countries were considered representative of a different region. The second track reviewed the potential of two BRIC markets.
The first track of the project assessed the impact of distribution channels upon pricing, especially the emergence of online sales. We also estimated the impact of regulations and subsidies thematically upon the markets and the evolution of government influence in these markets. Key output factors included overall pricing expectations for a market, pricing relative to inflation, prevalence of discounting, the likelihood of subsidies, and how pricing changes by solution types.
The second track looked at two BRIC nations’ attractiveness as new markets within the next five years. Outputs included describing the levers that could drive adoption, potential pricing and sales volume estimates, the role of incumbents, and how the market may evolve over the specified period
We determined that deregulation led to the emergence of additional distribution channels (including digital), an increase in competition and a rapid erosion of pricing power. Our assessment was that the future pricing trends would be negative and unlikely to improve. Regarding the BRIC markets, the evaluation suggested that the markets would be volume and not price driven, and their overall attractiveness would remain limited.
The client incorporated our findings into its financial/revenue model for this potential acquisition. The client eventually declined to move forward and the target was acquired by someone else. Over the last year, global pricing trends in the industry have validated our work and our client’s strategy.