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Pricing Behaviour for Top Stock Market Picks

4 September 2006 - Features - Editor

Buying pizza can be more than a simple indulgence in the contemporary convenience of urban living: stock market aficionados can use it to illustrate a prime investment principle! Some entrepreneurial players in the lucrative fast-food market specialize in value-added differentiation, with innovative presentation, pandering to every consumer taste and unbeatable service guarantees. Others just play the margin-busting game of offers that might make you marvel at the apparent out-of-pocket expenses in baking and delivering a pizza! Imagine 7 inches free when you buy 12 inches!

Michael Porter, in his famed treatise on competitive strategy, makes price competition sound on par with differentiation based on technology and true understanding of customer needs. That might be so in the hallowed portals of the Harvard Business School, but in which kind of Stock Market Company should investors put their money? Sales people are notorious for notching up sales 'at any cost', but what if the freebies are not sustainable? Market share gained on price alone is worthwhile for vendors with lucrative supply contracts signed and in their bags, but what does it mean for those who extend stock market support in the hope of dividends and price appreciation?

Product and service advertising can create images of corporate well-being that hard numbers belie. Stock market players are also consumers, so we all have to keep our various hats apart! You may be a loyal consumer and even an avid supporter of certain brands, but do not allow your decision-making for sensuous pleasures interfere with objective stock market appraisal of where to put your investment funds. It is entirely possible that the brands you wished you could afford are owned by companies which are best nests for your stock market investment funds!

Business houses which keep improving operating margins, review product prices frequently, extract high values from distribution tiers and cut back on fixed costs with lethal precision, are worth buying and holding, virtually without concern for stock market trends. The reverse is true of companies headed by optimistic sales people who buy elusive and transient market shares at almost any price, squander money on outdated trade conventions, make wild commitments and waste resources with abandon. Some players on the stock market may be attracted by their glitter, but soon discover that competing on price is for the birds!

 


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