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Strategic Intelligence
Deep Dive
The pricing power test
The four questions that tell you whether you can pass rising costs on, or must absorb them. Most businesses decide by instinct, in the pricing meeting, under pressure. This replaces the instinct with a score, before the meeting.
Every business is about to be asked the same question from two directions at once.
Demand is softening, June retail sales growth halved to 1.9%, a real-terms decline once inflation is counted. Costs are threatening to rise - oil back at $85, forecasters pencilling UK inflation at 3.2% by Q4. The middle of that vice is your margin, and there are only two ways out: pass the costs on, or absorb them.
Answer four questions for one product, service, or customer segment at a time. Score each 0, 1, or 2. Be harsh, the test only works if you'd defend each score to your most cynical colleague.
01 Substitution: where would they go?
If you raised prices 5% tomorrow, name exactly where your customers would take the business. A named competitor at a known price: 0. A plausible but painful alternative: 1. If you genuinely cannot name where they'd go: 2.
02 Share of wallet: do they notice you?
Look at your invoice from the customer's side. A rounding error in their cost base, where a rise passes without a meeting: 2. A line item someone is paid to track, where every increase triggers a negotiation: 0. In between: 1.
03 Switching cost: what does leaving you break?
If a customer left tomorrow, what would it cost them? Retraining, integration, re-certification, risk of disruption: 2. Mild inconvenience: 1. If they can switch over a weekend without telling anyone: 0.
04 Provable value: number or feeling?
Can you attach a figure to what you improve for the customer; hours saved, revenue added, defects removed? A number they'd recognise: 2. A benefit they'd agree with but couldn't quantify: 1. A feeling: 0.
Reading the scores
6–8 · Raise. You have pricing power. Businesses in this band systematically under-price because the fear of the conversation outweighs the evidence. Schedule the review now, before Q4 cost pressure makes it look reactive.
3–5 · Selective. Not one increase across the board, raise where the individual question scores are highest. A customer with high switching costs and provable value takes an increase that a tracked line-item customer will fight.
0–2 · Fix first. Do not raise. A price rise from this position invites the substitution you just admitted exists. Raise switching costs (integration, contracts, service depth), convert your value from feeling to number, then retest.
The trap to avoid
The test scores positions, not products. The same product can score 7 with one customer segment and 2 with another. Run it per segment, or the average will hide exactly the decision you needed to make.
The 30-minute build
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Pick your top three products or customer segments by revenue.
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Score all four questions for each,twelve numbers, one page.
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Anything at 6+ goes on a September price-review list, before Q4 pressure arrives.
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Anything at 0–2 gets a fix-the-score plan, not a price rise.
The answer is almost never one number. The businesses that get Q4 right will raise prices in three places and hold them in two, on purpose.
Key Takeaways
- Pricing power is measurable before the pricing meeting: substitution, share of wallet, switching cost, provable value.
- 6+ means raise with confidence; 0–2 means fix the score before touching price.
- Score customer segments, not products, the same product carries different power in different hands.
- Softening demand punishes indiscriminate rises and still rewards earned ones.
The brief they never gave you
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