"The legendary investor Warren Buffett considers pricing power to be the most important criterion when evaluating the value of a business. The value of a brand is also ultimately determined by the extent to which it can achieve a price premium.
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In reality, most firms view their pricing power as quite limited. In its “Global Pricing Study,” Simon-Kucher & Partners surveyed 2713 managers in 50 countries. Only one third of the respondents ascribed high pricing power to their own company. The remaining 67% believed that their company is unable to realize the prices it needs in order to achieve appropriate profit margins.
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Another important current trend is the rising level of attention which top management is paying to price.
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In the Global Pricing Study by Simon-Kucher & Partners, some 82% of respondents from around the world said that top management is taking a more active role in pricing. There are several reasons for this. First, top managers and executives realize that their companies have either exhausted their cost-cutting potential or will have great difficulty in achieving further gains.
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When top management gets involved in pricing, we observe a significant impact on the company’s performance.
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There is strong improvement across all indicators when top managers get involved in price management. Their inclusion obviously pays off.
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There are only three profit drivers: price, volume, and costs. Price has a particularly strong effect on profit.
Under ceteris paribus assumptions, price increases lead to massive improvements in profit, while price cuts effect very sharp profit declines. It is often more advantageous to grow through higher prices than higher volumes, or conversely, to accept volume declines instead of making price cuts.”
Trechos retirados de “Price Management” de Hermann Simon.
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