Starbucks is a great example of a company with pricing power – raised prices on their drinks, and sales didn’t decrease. If your attorney raises their hourly rate, would you switch law firms?
If a company or service firm does not have pricing power, then its value is less than it should be. Here are a few ways to develop or increase pricing power:
- producing a discernible branded product or service
- innovating with patent production such as Apple’s I-Pod
- providing such exceptional service that competitors are not able to replicate it
In today’s economy, many businesses are beholden to companies like Wal-Mart and Ford when it comes to setting prices. This is because these larger businesses can dictate the prices they’re willing to pay for products, leaving suppliers with little choice but to accept those terms.
For business owners, it’s important to understand if their company has pricing power. This means having the ability to set prices that result in a healthy profit margin, regardless of what larger businesses may be doing. If your company doesn’t have this power, it’s important to be aware of the fact and work within the constraints that are placed on you.