Pricing Power in a Margin-Squeezed Market
- Jerry Justice
- Jan 16
- 8 min read
The phone calls come in waves. "Our suppliers raised prices again." "Customers are pushing back harder than ever." "We can't keep discounting to win deals."
CFOs watch margins compress. Sales teams brace for another pricing negotiation. The pressure builds from both ends—costs climb while customers resist every increase.
Boards want growth. Investors demand profitability. The middle keeps shrinking.
Yet walk into certain boardrooms and the conversation runs completely different.
These companies raise prices and customers accept them. Their margins expand while competitors bleed. They don't win by being cheaper. They win because they've built something more valuable than price comparison shopping.
The difference isn't magic. It's architecture.
The Quiet Pressure of Narrowing Margins
The instinct when margins narrow is often reactive. Leaders look for places to cut or ways to discount just enough to keep the peace. Most companies treat pricing as a tactical lever pulled in isolation.
True leadership requires a different lens. If we view pricing solely as a number on a contract, we've already surrendered our leverage. Pricing is the final expression of value built into the fabric of organizations. It reflects the trust earned and problems solved.
When a company possesses genuine pricing power, it's because they've moved beyond selling a commodity and started providing a solution perceived as indispensable.
Expanding margins while others capitulate isn't aggression. It's clarity. It requires understanding why you exist and who you serve with such specificity that cost becomes secondary to outcome.
This is the shift from a defensive posture to a strategic one.
Understanding Where Pricing Power Lives
Pricing discussions often start with spreadsheets and end with compromise. That sequence misses the point. Pricing power lives upstream from the number itself. It's rooted in how customers experience value and how clearly that value is communicated.
When pricing power is present, price increases feel justified rather than imposed.
Customers may not celebrate them, yet they accept them because the offering solves a meaningful problem in a way others cannot easily replicate.
Theodore Levitt, Harvard Business School professor and marketing scholar, captured this with clarity. "People do not want a quarter inch drill. They want a quarter inch hole."
Pricing power grows when leaders stay focused on the outcome customers seek, not the features delivered. This shift reframes pricing from defense to leadership.
Warren Buffett, investor and CEO of Berkshire Hathaway, understood this principle deeply. "The price is what you pay. Value is what you get." The market doesn't pay for your costs. The market pays for the value it receives.
The Three Pillars of Strategic Pricing Power
Creating resilient pricing strategy isn't a project for the finance department alone. It's a leadership mandate spanning the entire organization. Three distinct pillars support a company's ability to maintain healthy margins even when wind blows against them.
Value Definition That Customers Recognize
The first pillar is operational excellence aligned with clear value definition.
Organizations often describe value in language that makes sense internally. Customers judge value through lived experience. Pricing power strengthens when those two views align.
When operations are lean and quality is consistent, you create baseline reliability many competitors cannot match. This reliability is currency. Research from Bain & Company in their study "The Elements of Value" found that functional values like "reduces risk" and "organizes" are foundational to customer loyalty.
When a customer knows choosing you means they won't deal with delays, errors, or hidden headaches, they're inherently more willing to accept premium pricing. You're not just charging for the product. You're charging for absence of friction.
Value definition requires discipline. Leaders must decide which problems they exist to solve and which they will intentionally ignore. Broad offerings may feel safer, yet they dilute meaning. Sharp value propositions attract commitment.
Research from Harvard Business School on value-based pricing emphasizes that companies outperform peers when pricing reflects customer willingness to pay rather than cost structures alone. This finding reinforces a critical truth: customers pay premiums for relevance, not effort.
Structural Design That Protects Margins
The second pillar involves structures that either reinforce value or erode it quietly. Many organizations undermine pricing power through their own systems. Discount policies drift. Exceptions multiply. Sales incentives reward volume at the expense of quality.
Over time, the system trains customers to wait for concessions. Structural design requires coherence across how decisions get made and rewarded. Key elements include clear guardrails for discount authority, incentives aligned with profitable growth, and governance treating pricing as a strategic asset.
Jeff Bezos, founder of Amazon, offered a blunt reminder of competitive dynamics. "Your margin is my opportunity."
That statement applies internally as well. Weak structures create opportunities for margin erosion long before competitors act. Strong design protects pricing power by making disciplined behavior the default rather than the exception.
Studies from McKinsey & Company show that organizations with formal pricing governance outperform peers on margin stability during periods of cost volatility. Structure doesn't restrict growth. It sustains it.
Building Customer Intimacy and Embedded Value
The third pillar is depth of relationship with the end user. Pricing power is highest when you know your customer better than they know themselves. By using data and feedback loops to anticipate needs, you can offer tailored solutions generalized competitors cannot replicate.
Bill Gates, Co-Founder of Microsoft, reminds us that "Your most unhappy customers are your greatest source of learning." This intimacy allows movement toward value-based pricing models. Instead of billing for hours or units, you can bill for success you facilitate.
Business strategists emphasize that pricing power emerges when companies embed themselves so deeply into customer operations that switching becomes prohibitive—not through contractual lock-in, but through operational integration making continuity and reliability more valuable than any competitor's lower price.
Geoffrey Moore, author and business strategist, explains this perfectly in "Crossing the Chasm": "When pragmatists buy, they care about the company they are buying from, the quality of the product they are buying, the infrastructure of supporting products and system interfaces, and the reliability of the service they are going to get."
This alignment of incentives creates a virtuous cycle. As the customer succeeds, your margins grow. This is the ultimate expression of pricing power because it's built on a foundation of mutual prosperity rather than zero-sum negotiation.
Why Reactive Discounting Signals Strategic Drift
The temptation to discount is strongest when quarterly targets loom. Discounting feels responsive. It often wins short-term relief. Over time, it signals uncertainty.
Customers learn that price is flexible while value is negotiable. That lesson proves costly. Leaders sometimes justify discounting as customer-centric. True customer focus looks different. It seeks fair exchange sustaining both sides.
Research from Bain & Company highlights that frequent discounting correlates with declining customer loyalty over time. The practice erodes trust rather than strengthening relationships. Chronic discounting shifts risk onto the organization while training customers to expect more for less.
Pricing power offers a healthier alternative. It creates confidence that the organization knows its worth and delivers consistently on promises.
The Paradox of Timing
Here's what makes pricing power difficult: you must build it when you don't need it.
When margins are strong and competition is weak, investing in differentiation, service excellence, and ecosystem development feels unnecessary. Why spend money on switching costs when customers aren't switching? Why invest in premium service when basic service retains accounts?
Then the market shifts. Input costs spike. New competitors enter. Customers push back. Companies that underinvested in pricing power foundations have only one lever left: price cuts.
Strategic pricing power functions as a lagging indicator of investments made years earlier. Companies that wait until margin pressure arrives to build differentiation find themselves with only one remaining lever: discounts.
The most effective pricing strategies take shape during periods of relative stability. Waiting until margins tighten limits options and credibility. Leaders who act early gain flexibility when conditions change.
Building pricing power is ongoing leadership practice. Revisit value definition as markets evolve. Reinforce structural discipline through incentives and governance. Refresh narrative so relevance stays current.
This work demands patience. Results compound quietly before becoming visible. When pressure arrives, these organizations respond from strength rather than fear. Pricing power becomes strategic reserve, ready when needed yet cultivated daily.
Leading Through Price Increases
Even with strong framework, adjusting prices will meet resistance. This is a test of leadership. How we communicate change in pricing is just as important as change itself.
Instead of sending a cold notification, engage in dialogue. Remind the customer of the value they've received and investments you're making to ensure that value continues. Show them how your internal innovations help keep their own costs down in the long run.
Research published in the Journal of Marketing on price fairness perceptions confirms that customers are much more likely to accept higher prices if they perceive the motive as fair and the value as consistent. When you lead with value, price increase becomes a necessary step in maintaining the quality on which customers depend.
Pricing Power as Leadership Responsibility
Pricing decisions reflect leadership values. They signal whether the organization prioritizes clarity or convenience, discipline or drift. Senior executives set the tone through what they tolerate and what they protect.
When leaders engage deeply with pricing architecture, they elevate the conversation beyond tactics. Pricing becomes a shared responsibility rooted in strategy rather than negotiation delegated downward.
Peter Thiel, technology entrepreneur and investor, observed "Competition is for losers." The deeper meaning speaks to differentiation. When your narrative clearly defines why you are distinct, price comparison loses relevance. Customers stop asking who is cheapest and start asking who fits best.
What This Means for Your Business
Stop treating pricing as a tactical negotiation tool. Start treating it as an output of strategic architecture built over time.
Audit your current offering through three lenses:
What makes switching to a competitor difficult for customers? If the answer is "contract length" or "nothing," you don't have differentiation. You have temporary retention.
What services do you provide that competitors can't or won't match? If your service is transactional and replaceable, you're competing on features and price.
How interconnected is your product ecosystem? If customers can easily swap out components, you're selling parts, not platforms.
The companies maintaining margins through market turbulence built their pricing power during calmer times. They invested when margins could afford it. They played the long game when short-term thinking was easier.
That's why they can raise prices today while competitors discount. They're not selling the same thing everyone else sells. They've built something different, something harder to replace, something of greater worth.
Your margins three years from now depend on strategic choices you make this quarter.
Partner with ACG for Strategic Pricing Architecture
Building sustainable pricing power requires more than tactical adjustments. It demands a comprehensive strategy aligning differentiation, service excellence, and ecosystem development with your unique market position. At Aspirations Consulting Group, we help leadership teams design and implement pricing frameworks that protect margins and create defensible competitive advantages. Whether you're facing immediate pricing pressure or planning for future market challenges, our strategic approach equips you to compete on value, not price. Visit https://www.aspirations-group.com to schedule a confidential consultation about strengthening your pricing position.
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