“The true definition of a company is a pricing power and if you have a prayer session for doing a 10% price increase you have a terrible business”
- Warren Buffett
Warren Buffett's Pricing Power Definition
by Madhavan Ramanujam on July 27, 2025
Pricing Power: The Ultimate Business Strength Test
Warren Buffett's quote reveals a fundamental truth about business sustainability: a company's ability to raise prices without losing customers is the ultimate measure of its value and durability.
Core Meaning
- Pricing power as business definition: A company's essence isn't its product or service, but its ability to command price increases
- Psychological barrier test: If raising prices by 10% causes organizational anxiety, your business lacks fundamental strength
- Value perception indicator: Pricing power reflects how essential and differentiated customers perceive your offering to be
- Competitive moat measure: The ability to raise prices signals you've created something competitors can't easily replicate
Why This Matters In Product
- Value creation metric: Pricing power provides the clearest signal that you're creating genuine customer value
- Strategic compass: Focusing on pricing power forces you to build products people truly need, not just want
- Margin protection: Products with pricing power maintain profitability even as costs increase
- Investment prioritization: Features that enhance pricing power deserve more resources than those that don't
How To Apply
For product leaders:
- Evaluate feature roadmaps through the lens of "will this enhance our pricing power?"
- Regularly test price sensitivity to understand your true competitive position
- Build organizational confidence around value-based pricing rather than cost-plus models
- Invest in understanding what drives customer willingness to pay
For ICs:
- Focus on creating features that customers would pay more for, not just use more
- Gather evidence of value delivered to support future price increases
- Understand the specific elements of your product that create pricing power
- Advocate for removing features that dilute your value proposition
The quote challenges us to build businesses and products with such clear value that price increases become a natural reflection of that value, not a source of organizational anxiety.