It’s no secret that the biggest players in a given market wield a lot of power when it comes to pricing. They can lower prices and leave other players scrambling. But at the same time, they have the power to raise prices without much fear of losing business. As Warren Buffett has often said: “The single most important decision in evaluating a business is pricing power.”
A new column from Seeking Alpha highlights this power for gases manufacturer and distributor Praxair (NYSE: PX). The Danbury, CT-based business has realized 3 percent pricing gains on average each year for the past 12 years. While that may not sound like much to some people, the author notes that with compounding, that’s a one-third increase from pricing alone in that timeframe.
It might be easy to dismiss these types of results as a benefit of being big like Praxair, but smaller distributors can benefit just as readily if they approach pricing strategically – just as Praxair has been doing.
Here are some resources from the MDM archives that can help distributors gain their own pricing power:
- First Steps in Strategic Pricing – Distributors must “unfreeze an organization” and get it out of its old habits.
- Get Paid for the Value You Add – Volume-driven strategies are not the best option.
- How to Get Customers to Fight for You – Customers are willing to pay more when they recognize value beyond the short-term, but that means distributors have to be able to prove that value to their customers.