Pricing Power

Pricing power refers to how much a change in price by a company can influence demand for one if its product. A big competitive advantage usually translates into pricing power. It’s a very useful concept if you want to test your competitiveness. You ask yourself: what happens if we raise price? Do people keep on coming? Do we lose everyone? How much better is our service or product if raising prices a little bit scare everyone.

There are different kinds of competitive advantages that gives you pricing power. Product advantage, brand advantage, distribution advantage, cost advantage, intellectual property advantage, legal advantage, etc.

Think about Supreme and how fast they sell 300$ t-shirts (brand).

Think about a remote gas station that can sell gas 3c (distribution).

Think about a Michelin star restaurant with 500$ tasting menus (product)

Think about Starbucks charing 5$ for teas (brand + distribution).

Think about a trademarked drug that sells for 45$/pill (legal).

Or think about Apple and the price of their iPhones (pretty much all advantages).