Companies
Pricing power, and how to spot the real thing
Everyone claims it. Very few have it. Here is how we test for it.
Pricing power is the most valuable thing a business can have and the most often claimed without proof. Management teams love to tell you their customers are loyal. We would rather find out what happens when they raise the price.
Real pricing power leaves marks. Gross margins that hold or widen through inflation. Price rises that do not show up as lost volume. Customers who grumble and renew anyway. A product whose cost is trivial next to the cost of it failing.
False pricing power leaves marks too. Discounts that quietly never reverse. Promotions that became permanent. Volume that only grows when the price drops. The income statement remembers what the investor deck forgets.
The cleanest test is the one companies rarely offer up. When did you last raise prices, by how much, and what did you lose? The answer, and how comfortably it is given, tells you most of what you need.
The views above are the firm's own and are provided for information only. They are not investment advice, nor an offer or solicitation to invest. Capital at risk; the value of investments can go down as well as up, and past performance is not a guide to future results.
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