Last Friday, Bloomberg.com posted an article quoting Warren Buffett on the importance of Pricing Power when evaluating a company’s position.
I totally agree that pricing power is an incredibly valuable thing. There are a small minority of companies that have this broad-based power as Mr. Buffett talks about.
However, the majority of companies have much more power than they might expect… in The Price Advantage, we put forth the idea that many more companies can make pricing a source of competitive advantage for their business. For example, most companies have a rich history of pricing transaction data in their systems, but do not use this information to price the next deal that comes by – instead, relying on simple rules, or gut feel.
Companies can create pricing power. Leading companies equip their pricing decision makers with sophisticated tools to find the opportunities, and surround those tools with leading edge pricing processes and organizations. It takes hard work, and good management, but the rewards are quick and substantial.