Poor Pricing Power

Geoffery Colvin writes about the lack of pricing power for most businesses.

As I talk with businesspeople in all kinds of industries, they keep making the same complaint. They can't raise prices, and it's killing them. Now that the economy is just maybe picking up some speed, they hope they'll finally get back some pricing power. But the hard truth is that the economy has changed, and pricing power isn't simply going to come back—you've got to get it back. And the rules for getting it have changed.

Maybe some industry somewhere isn't loaded with global overcapacity, but I'm still looking for it. The worldwide abundance of capital, one of the business megatrends of our time, has made this capacity glut a long-term fact of life, sitting on top of prices like an anvil. In addition, new competitors arise more quickly and easily than ever in the Info Age; just ask traditional booksellers, insurance agents, and travel agents being hammered by online competitors.

It gets worse. Your customers have more information about you and your competitors than you yourself had five years ago, and they can find the best deal available at any moment—a revolution in many industries. As strategy guru Gary Hamel says, if your business model is built on customer ignorance, you're in trouble. And if you sell anything to consumers or small businesses, you cannot escape the price-crushing influence of the most important company in America, Wal-Mart.

He lists some factors that can improve pricing power, but in most industries it will be tough. I read articles like this and I just have to laugh at those people who think corporations control and manipulate us. An educated consumer armed with the relevant information is not a zombie controlled by big business. People often complain that Wal-Mart will take over the world, but they won't. They will slip up sooner or later and someone will use the opportunity to mount a serious challenge. It always happens. We, the consumers, have more power than we think.

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