What is pricing power ?
A simple question from Prof Sanjay Bakshi on Twitter got a gamut of responses from his legion of followers, Don’t miss the entire discussion here
I have tried to penned down my understanding in form of few questions hope they help you next time when you are evaluating a business
When you think of Pricing Power
What’s obvious ?
When a company has following attributes
- Easily pass on increases in costs to customers without having volume declines
- Strong brands and customer loyalty allowing company to charge premium price over competitors
- Pricing power is when you can sell $120 phones(manufacturing cost) to people at $650 just because you are Apple
- Making/marketing a product that is so loved by customers that they find ‘value’ even at increased prices
- The ability to increase the prices of your product without losing market share to competition
- Ability to price ahead of inflation
- When elasticity of demand of your product is not price sensitive
What’s not so obvious ?
- Pricing power isn’t just about increasing prices of your OUTPUT .It’s also about lowering prices of your INPUTS
- Pricing power is not just about RAISING prices. It includes power to CUT prices,