Warren Buffett has stated: “The single most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business. And if you have to have a prayer session before raising the price by 10 percent, then you’ve got a terrible business.”
Does your company have pricing power? Sure, it does. Almost every business has some. Even businesses that believe their products are just a commodity likely have pricing power somewhere in their structure. The question is where – and how do you tap into it?
The key is to be strategic in identifying your pricing power. Our pricing consultants have seen few businesses that have pricing power across their entire range of offerings. Look for narrow segments or even specific transactions within your business where your offerings can support slightly higher prices. Remember, even the smallest increases in price can have a dramatic impact on your bottom line.
Here are three key areas where you may have pricing power. Think about your business as you consider each of these potential areas of opportunity:
In fact, our pricing consultants find that you can leverage your pricing power in a variety of ways. High-value products, small customers with little buying power, and situations with little or no competition all present opportunities for leveraging pricing power with minimal risk.
Want to forgo the pre-price-increase prayer session? Harness the strength of your pricing power, and make those price improvements with confidence!