Strengthen Pricing Power

Hermann Simon and Adam Echter
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Hermann Simon: Simon-Kucher & Partners
Adam Echter: Simon-Kucher & Partners

Chapter 8 in Beating Inflation, 2023, pp 61-69 from Springer

Abstract: Abstract Pricing power is the ability of a company to impose higher prices to generate a reasonable profit. Under inflationary conditions, pricing power is even more important for ensuring a company’s lasting success than it is under price stability. Statements by famous investors such as Warren Buffett and Peter Thiel have brought interest in pricing power to the fore. In studies, only about one-third of companies say they have superior pricing power. Regarding price increases, stronger pricing power means that price elasticity is lower and the margin for price increases is widened. Thus, companies with high pricing power will cope much better with inflation than those with low pricing power. The counterpart to pricing power on the customer side is buying power. It plays a major role in industries such as automotive and food and makes it more difficult for manufacturers to implement price increases. Pricing power is created in the long term through superior performance and cannot be created in the short term. Financial power can be used to strengthen pricing power. The involvement of the CEO in the pricing process contributes significantly to strengthening pricing power. The success rate of price increases is higher with CEO involvement.

Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-031-20093-9_8

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DOI: 10.1007/978-3-031-20093-9_8

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