90% of Companies Affected by Middle East Situation Implement or Consider Price Pass-through, but 50% Pass on Less Than Half of Cost Increases - BCG Survey

Boston Consulting Group (BCG), a management consulting firm, conducted a survey of 110 corporate executives and 1,000 consumers to analyze the impact of the instability in the Middle East on product/service prices and cost increases. In the corporate survey, among company officers and executives (hereinafter "executives") who answered that their company/business was affected by the Middle East situation, about 90% answered that they had already passed on or were considering passing on the cost increase. It was also found that about 70% of companies are highly likely to make additional price revisions in the next 3 to 6 months. On the other hand, when asked about the main barriers to price pass-through, 44% cited "customer price resistance/backlash," 42% cited "price competition with competitors," and 40% cited "concerns about decreased demand," revealing that over 40% of executives are strongly concerned about the deterioration of customer relationships and a decrease in transactions due to a decline in price competitiveness. Furthermore, when executives who answered that they had already implemented or were considering price pass-through were asked how much of the cost increase they expected to be able to pass on, about 50% expected to be able to pass on less than half of the cost increase, indicating the difficulty of fully reflecting costs in prices. In the survey of 1,000 consumers, over 90% of people thought that the instability in the Middle East would affect Japanese prices in the future. Among the items they thought would be affected, gasoline, electricity, and gas bills (86%), daily necessities prices (75%), and food prices (70%) were cited as the top items. Also, regarding price increases for products and services within the next year, about 60% of consumers recognize that up to about 5% is unavoidable, and this percentage reaches 60% even for daily necessities and food, which have high price sensitivity. From these surveys, it can be seen that while companies remain deeply concerned about customer churn due to price increases, consumers are adapting to the market environment and there is room to accept price increases if they are within a certain range. Furthermore, about 50% of consumers answered that they would be more likely to accept price increases if there was a clear explanation for the reason for the price increase, revealing that communication by companies greatly affects consumers' acceptance of price increases. Also, when asked what reasons for price increases were easy to accept, about 40% of consumers cited "response to rising raw material costs." Keiko Kihira, Managing Director & Partner at BCG, commented, "Price changes are becoming a realistic option for companies, but concerns about customer churn remain deep-seated. To gain the understanding of customers and consumers, it is required to determine the appropriate range and convey reasons that consumers feel are fair."