3 companies with exceptional pricing power | Motley Fool Australia

There is an easy starting point if you want to invest like Warren Buffett: dedicate a large part of your time finding companies with exceptional pricing power.

In Buffett’s own words “the single most important decision in evaluating a business is pricing power”.

This is because companies that can raise prices without losing customers can grow at increasing returns and rapidly compound wealth.

So let’s look at three companies I rate as having exceptional pricing power.

CSL Limited (ASX: CSL)

Specialty blood product company CSL Limited gains its pricing power largely through the ownership of intellectual property over its superior research and development.

SEEK Limited (ASX: SEK)

The pricing power held by Seek comes from the self-reinforcing ‘network effect’ where the value of the service grows as more people come together to use it.

Once a company becomes a known market place for a particular product, or in Seek’s case a service like advertising job vacancies, it can be incredibly hard for new competitors to steal customers and prices can be raised with surprising ease.

It is important to remember that pricing power is always at risk of erosion so must be reviewed constantly. Xero for example may get out-competed by a rival over time, or Seek may come under pressure from the Linkedin if it starts to achieve critical mass.

However if you really want to build and compound your wealth, start by putting companies with strong pricing power at the top of your investment list.

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3 companies with exceptional pricing power | Motley Fool Australia.