Price Competition is the Principal Stock Value Destroyer (Part 2)

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EVA and Risk Perspectives of Operational Pricing Effects on Stocks

A professional manager who is committed to supporting a positive stock price trend has to consider economic value addition (EVA) and the significant risks of a business, when he or she takes diligent decisions regarding pricing decisions for products and services. Outcomes of such thinking may be entirely different from ones which are short-term or poorly-informed about the lasting impacts of direct and indirect price reductions. The telecommunications sector in emerging countries serves as an illustrative example of how stock investors can be affected by pricing decisions at the tactical level.

Cellular telephony is truly an industrial revolution of the early 21st century in India. More than a million new subscribers have been added month after month, with small traders, young people, and miscellaneous service providers in the swelling ranks of those who use mobile services almost incessantly. The government limits competition by auctioning regional licenses for service providers. Hand set manufacturers, technology providers, members of logistics chains, and consumers have been eminent beneficiaries of the largesse, but network providers present a picture of consolidation and exits. Have the operators who have stayed the course and expanded market shares won, or are the stock owners who have migrated to other territories fared better?

Bonds, Gold, Currencies, and Realty, Beat Stocks Here!

Do stock brokers and other quarters of a stock exchange forget or downplay securities that are free of executive errors with respect to setting prices for goods and services? Stock investment is known to yield ground to other securities and forms of financial planning in recessionary times, and the move will be exaggerated if executives do not take care to protect operating margins in preference to market share. Managers in high growth economies and sectors should be watchful lest they build legacies of sacrificing stock value at alters of market share and customer delight.

Business management literature is replete with strategies and tactics to protect effective selling prices. Inflation correction and even reflection of enhanced values need not be blatant, though it is only natural for customers to crib when they are asked to shell out more than they have become used to do. We have started work on an article titled “Pricing Strategies That Appease Customers and Stock Investors Simultaneously”. We hope to publish this shortly. Please bookmark this web site or ask at our forum for an alert when this piece is ready, so that we have the pleasure of a dialog with you on this key aspect of stock value.

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