Pricing power /purchasing power

31st Oct '16 by Jonny shares

1 comment 5537 reads

Just a thought if any one has an idea of how to interpret or gauge wether a company has a pricing or purchasing power? If its detectable via financial statements?

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Jonny Shares

Premium Member

1 comment

WarrantStar

31st Oct '16

I apply the following test for pricing power:

ELEMENT	EXAMPLE & COMMENTS
ACTUAL PRICE INCREASES	SURELY THE STRONGEST EVIDENCE THAT THE COMPANY HAS PRICING POWER IS THAT THEY HAVE SIGNIFICANTLY INCREASED THE PRICE WITHOUT LOSING MARKET SHARE
TECHNOLOGICAL EDGE	THE COMPANY HAS TECHNOLOGY WHICH CONFERS BENEFITS ON THE CUSTOMERS WHICH COMPETITORS ARE CURRENTLY UNABLE TO EMULATE
LARGE INSTALLED BASE	DUE TO THE WEIGHT OF PREVIOUS PURCHASES, THERE MAY BE A RELUCTANCE FOR THE CUSTOMERS TO CHANGE TO A COMPETITOR. EG REPLACEMENT PARTS FOR EXPENSIVE EQUIPMENT. CUSTOMER WISHES TO MAINTAIN ORIGINAL EQUIPMENT STATUS. POSSIBLY RELATED TO WARRANTY ISSUES / SWITCHING COSTS / RECURRING REVENUES. ANOTHER EXAMPLE IS APPLE USERS MAY BE RELUCTANT TO CHANGE TO OTHER BRANDS BECAUSE THEY PREFER AND ARE MORE USED TO APPLE OPERATING SYSTEMS.
HIGH OR DOMINANT MARKET SHARE	THIS MAY BE EVIDENCE OF A LACK OF EFFECTIVE COMPETITION WHICH MEANS THAT CUSTOMERS ARE LIKELY TO STAY PUT. BUT HOW LONG WILL THIS SITUATION LAST?

These things cannot be determined quickly & easily. It is necessary to spend time conducting research on the company.

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Pricing power /purchasing power

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About the Author

Jonny Shares

1 comment

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