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Pricing Decisions and Stock Value (Part 2)

7 February 2008 - Miscellaneous - Editor

Pricing Decisions and Stock Value (Part 1)

Though pricing affects stock value so strongly, it is not easy to assess the quality of management processes in this respect. Even if a customer is willing to stay with a brand in spite of a pricing change, he or she is certain to deny voluntary acceptance when asked. You will surely be back at a gasoline station no matter what the Sheikhs decide to do to the crude price per barrel, but will protest as strongly as possible nevertheless!

Clever Clustering and Mixing to Protect Stock Value

A sound alternative for stock investors who want to evaluate pricing decisions by managers is to understand the market segmentation involved, and how the marketing mix has been structured for a product or service. A Marketing Plan is generally a top secret document, but only this can reveal if pricing has been optimized for a brand. The secrecy that surrounds marketing strategy is a major reason for enormous stock growth and value opportunities to be lost. It is also the reason for marketing as a function to have strong inputs from finance. Marketing personnel with finance backgrounds will often be more successful at branding than sales personnel who have moved in to support functions as rewards for meeting short-term targets. This is also why exclusive top-line focus tends to erode gross margins and profitability over time.

Niche marketing is probably more productive than addressing a mass market. Some closely held stocks pander to egos of inheritors, while the ones with the best yields may stay in first generation private equity hands, sometimes altogether out of public stock market reach. Since stock investing involves hunting for hidden stock value, it is profitable to search exclusively for stocks that have plenty of scope for profitability rather than volume growth. Airlines, automobiles, cellular telephony, and fast moving consuming brands, are favorite hunting grounds for stock investors to find stocks that involve gross pricing errors. However, they are unsuitable for retail stock investors, since corrective action will probably require company acquisition before new marketing management can be put in place.

How do you judge whether pricing for brands you own through stocks is right? Do you worry that you have opportunity losses in terms of dividends and stock price trends because management teams obfuscate their market share and profitability trade-offs? Do you know of latent stock value waiting for new business management approaches to the vexed matter of fixing label and effective market prices correctly? We invite you to post your experiences and opinions at our forum. We expect to publish a companion piece to this article shortly, with the title ‘Price Competition is the Principal Stock Value Destroyer’. We will cover specific cases of brands losing business opportunities due to pricing controversies. Please bookmark our site and come back soon!

 


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