During today’s Acuity Brands investor call, your humble editor saw a refreshing shift in Acuity’s strategy regarding price. Neil Ashe, the company’s CEO, has articulated a firm belief in the value of managing pricing, a move that diverges from the common industry practice of competing on cost reductions.
In today’s call, Ashe highlighted the company’s success in enhancing product value through a combination of new introductions and improvements to its existing portfolio. This approach has not only made their products more valuable to customers but also more profitable for the company itself. “Our products are perceived as being more valuable in the marketplace. At the same time, we are lowering costs,” Ashe stated, underscoring the dual benefits of their strategy.
The company’s confidence in their product value is allowing them to strategically manage prices. Ashe affirmed, “Specifically, in this quarter we’re recognizing that our products, as I said in the prepared remarks, are being valued for their impact in the marketplace, which affords us the opportunity to manage price strategically.”
Instead of focusing on cutting prices to maintain market share, Acuity Brands is leveraging the quality and impact of their offerings to justify price increases. Analyst Joseph O’Dea of Wells Fargo probed into this strategy, questioning if the company was indeed taking the price up this quarter due to the delivered value, to which Ashe responded affirmatively.
The company’s price management is not a spontaneous decision but rather part of a well-thought-out plan that has been in motion since the previous quarters. “We are realizing the benefits of price in the first quarter. We talked about in the last call, and, in the second quarter, we also implemented a price increase. So, we’re demonstrating to the market that we will continue to manage price,” Ashe explained.
Ashe also addressed concerns regarding the potential sacrifice of market share for profit margins. He clarified that Acuity Brands does not believe it is sacrificing share for margin, a stance they have consistently maintained.
Acuity Brands’ strategy reflects a confidence in the intrinsic value of their products and a commitment to profitability, potentially setting a precedent in the lighting industry where price management becomes a strategic tool rather than a reaction to competitive pressures. This move could herald a new era where innovation and product value drive market positioning, encouraging others in the industry to reconsider their pricing approaches.
The concept of pricing a product based on its value to the customer might be somewhat unconventional in our industry, but if the largest lighting company in North America is signaling this strategy, it may inspire others to give the concept consideration.