Pricing Power: Dell Declines and Biogen Grows

Busy travel week but from today’s the pile of WSJ’s on my desk–pricing continues to be the make or break strategy for a host of companies. 

Biogen has seen revenues grow 10% due mostly to a 22% price increase in their MS drug Avonex.  Now that’s pricing power.  Yes, they complain about the cost of making the drug–it is considerably higher than a traditional drug since it is out of living cells.  And yes, it took a lot of R & D dollars to make it.  But despite the price increases, they have seen an 8% increase in users over just the past three months.  Extend that with the price increase over a year and you get a hefty 66% growth in revenue for the drug in just one year.

Compare that to Dell that is still struggling with the downturn.  They’re complaining about slowing demand and rising costs—a sure sign of declines in pricing power.  With the increasing sales of higher power servers and lower value “netbooks”, Dell is stuck in the middle of HP and Chinese outfits who now hold the low cost position.  Dell doesn’t have the profitable mix that HP does which undermines their position even further.  Our guess is that HP will do just fine as indicated by Intel’s recent announcement of 12% increase in revenue for the last quarter.  It will be interesting to see what HP’s results are–they should be good.

How’s your pricing power?  That power comes from brand, value and competitive pressures.  Even steel makers, typically a highly competitive industry have built pricing power by not emplying “bomb them back to the stone ages” pricing strategies during this downturn.  Stupid competitors can always short circuit a good strategy but that takes some level of commoditization to pull off.  Too many times we see that the idea of commoditization comes more from theatrical PA’s than the real value users in the firm.  If you are feeling commoditized, think about where those pressures are coming from.  Most firms have more pricing power than they realize–it’s just a question of understanding where it comes from.