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Definition

The ability of a company to raise the price of its products without losing significant market share. Pricing power is determined by the existence of suitable substitute products and competition. For example, in a highly competitive industry, like the toothpaste industry it is difficult for producers to create much pricing power because the consumer always has a range of toothpaste choices at competitive prices. However, in more monopolistic markets, like the beer market, SA Breweries (now part of AB InBev) controls as much as 90% of the South African market and enjoys considerable pricing power. To overcome the problem of competition, manufacturers try to create "brand loyalty" through intensive advertising and consumer awareness. So, for example, the brand "Coke" has become one of the best known brands in the world and it is now very difficult for their competitor, Pepsi, to take market share away from them. This gives Coke a small amount of pricing power, especially in South Africa where their brand is slightly more expensive and has considerable brand loyalty.

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