Pricing power without price cuts: how to hold your price when competitors drop theirs

A pricing strategy is the decision about the place a company wants to occupy in the customer’s mind when the customer puts its offer next to others, together with the rules that defend that place. Pricing power is what that strategy produces when it works: the ability to hold or raise a price without losing the customer to a competitor.

Most companies treat price as a sales lever and pull it down when orders slow. The lever works in the short term, and it teaches the customer something that is hard to unlearn, namely that price is the right criterion for choosing a supplier.

TL;DR. You defend a price through the criterion the customer uses to compare you, and the figure on the quote matters less than that.

A discount moves the comparison to the one axis where the lowest-priced supplier always wins. A company that changes its unit of value, from the product to the outcome the product protects at the customer, leaves the comparison without lowering its price.

This article shows what a discount of a few percent costs in profit, what price signals about a company, and what the change of unit of value looks like in four Romanian companies whose audits we have published.

Romania is where our clients are, and it also makes a useful case study of what happens to prices when inflation falls. At the end you will find a calculation you can run on your own figures in ten minutes.

I wrote separately about why a price war starts, in the article on price war as a perception problem. Here I deal with the practical side, which is what a company does to hold its price while competitors lower theirs.

What is a pricing strategy?

A pricing strategy sets the position a company takes against its competitors and what the customer receives in return for the price difference. Textbooks usually describe three methods: cost-plus pricing, competitor-based pricing and value-based pricing, where the price follows the value the customer perceives. The first two start inside the company, and the third starts in the customer’s mind.

Cost-plus is probably the most widely used method, because it is easy to calculate and easy to defend in front of the accountant. It has a structural weakness, though. The customer neither knows nor cares what your costs are. The customer compares what they get from you with what they get from others, and when no difference is visible, they compare the numbers.

Competitor-based pricing looks more prudent, because it keeps the company in the zone where sales happen. In practice it hands the decision to the most aggressive competitor in the market. A company that copies its price from others copies their margin as well.

Value-based pricing is the only method that leaves room for a position of your own, and it asks for something the other two do not: the value has to be visible to the customer before the negotiation starts. Without that, the most carefully designed price list turns into a discussion about discounts at the first quote.

In an ordinary negotiation, the pricing question arrives as a request for a discount. The customer asks how far the company can come down, and the company answers with a percentage. The useful question comes before that one, and it concerns the criterion the customer uses to compare.

What is the difference between a pricing policy and a pricing strategy?

A pricing policy is the set of operating rules about prices, meaning price lists, volume discounts, payment terms and who approves an exception. A pricing strategy is the positioning decision from which those rules derive.

A company can have a very detailed pricing policy and no strategy at all, in which case the rules defend a place that nobody chose.

Hermann Simon, founder of Simon-Kucher, one of the best-known pricing consultancies, described the link between the two in his article “Pricing and the CEO”, published in The Marketing Journal.

“If a company chooses a premium price positioning, all aspects of strategy, culture and implementation have to be different from those of a company that aims for a low price position.”

Simon adds that once the position is chosen, management has to align every function of the company with it and defend it against pressure from inside and outside. A price position is decided at the top and defended in every single offer.

A generous discount policy, approved by sales to close the month, can undo within weeks a position that took years to build.

The difference shows first in communication. A company with a pricing strategy presents its offer through the outcome the customer gets, and then puts the price next to that outcome. A company without one presents its offer through the product and the discount, and the price becomes the only number the customer can compare.

Why does a price cut cost more than it seems?

A price cut costs more than it seems because it comes out of profit in full, while the extra volume it brings has to cover both the cut and the cost of the additional units sold. A few percentage points given away on price usually demand extra volume that few markets can deliver.

McKinsey measured the effect on US companies in the S&P 1500 index, in its analysis “The power of pricing”. A 1% price increase, at constant volume, raised operating profit by 8%, almost 50% more than the effect of a 1% drop in variable costs.

The same analysis shows the reverse calculation, the one that matters for a company tempted to cut. In the authors’ words, “volumes would have to rise by 18.7 percent just to offset the profit impact of a 5 percent price cut.” The analysis appeared in McKinsey Quarterly in the early 2000s, so the data is old, but the arithmetic has not changed.

The authors note that such price sensitivity is extremely rare, and that cutting price to grow volume and profit fails in almost any market.

Even announced price increases get lost along the way. The Simon-Kucher global pricing study for 2025, covering more than 2,200 executives in 28 countries, found that companies collect on average only 43% of the price increases they decide. Among the main obstacles, respondents named customer resistance, at 23%, and competitive pressure, at 22%.

The red card shows why a cut looks inexpensive only at the moment you grant it. A 5% cut needs almost a fifth more volume just to stay where you are. That volume has to be produced, delivered and served, with the people and the capacity the company already has.

There is one more cost, and it does not show up in the figures for the month.

Carl Mela, Sunil Gupta and Donald Lehmann followed the behavior of buyers of a packaged consumer product for more than eight years. Their 1997 study in the Journal of Marketing Research showed that over time customers become more sensitive to price and promotions, as promotions grow and advertising shrinks.

The study covers a single consumer product, so the result reads only as an indication. In Romania, the share of promotions is already high. According to an analysis by YouGov of the Romanian fast-moving consumer goods market, in the first quarter of 2025 purchases on promotion made up 23% of household spending on these products.

What does price signal about a company?

Price tells the customer something about quality and position before the customer tries the product. A low price says the offer is ordinary, and a high price backed by proof says the offer deserves attention. Price is the first brand message the customer reads, often before the name.

The effect has been measured directly in the brain. In 2008, Hilke Plassmann and her colleagues at Caltech and Stanford published in PNAS an experiment in which participants tasted the same wine presented at different prices. The higher price raised both the reported pleasantness and the activity in the area of the brain associated with experienced pleasure.

Price changes how the product is experienced, even when the product is identical. For a company the consequence is direct. A discount shown permanently lowers what you collect and, at the same time, changes what the customer believes about what they are buying.

The signal often starts well before the price itself, in the words a company uses to describe itself. In the positioning audit for TAMOS, a furniture manufacturer, I read on August 27, 2026 the description the company gave to search engines. The first word describing the product was “ieftina”, the Romanian word for inexpensive, and the second was “quality”.

In the code of its main page, the company explicitly asked to be shown to people searching for inexpensive furniture. Whoever comes in on the word “inexpensive” negotiates on price from the first second. The verdict of the audit was that TAMOS held a commercial price mechanism with a design discourse laid over it, and that a premium price positioning was missing.

Warren Buffett described the importance of that signal in his 2010 interview with the US Financial Crisis Inquiry Commission, reproduced in full by Barry Ritholtz. “The single-most important decision in evaluating a business is pricing power. If you’ve got the power to raise prices without losing business to a competitor, you’ve got a very good business.”

Buffett adds, in the same interview, “And if you have to have a prayer session before raising the price by a tenth of a cent, then you’ve got a terrible business.” The pricing power he describes appears when the customer cannot find an offer comparable to yours.

How do you get out of price competition in B2B?

You get out of price competition in B2B by moving the unit of value you sell, from the product to the economic outcome the product protects at the customer. As long as you sell the product, the customer compares products and prices. When you sell the protected outcome, the customer compares risks, and your price becomes a small part of a larger calculation.

Comparison on price appears as a pattern in eight of the audits we have published, from cable and furniture manufacturers to dairy producers, and in five of them the framing is confirmed by the audits’ internal labels.

At Cablero and TAMOS, the company described itself through quality and price, and at Therezia through “tradition, quality, taste”, in all three cases through the minimum definition of the category it competed in.

Cablero, a steel cable manufacturer from Iasi, is the clearest example. The company talked about “premium quality”, like all its competitors. In the Cablero positioning audit I wrote the conclusion as a single headline. The way out of the price war runs through language, not through discounts.

The first ad proposed in the audit states the mechanism in a few words. “A 20-lei cable. A 20,000-lei stoppage.”

Lei is the Romanian currency, so the line sets a cable worth a few euros against a halted production line. An industrial customer is really buying the certainty that the line does not stop. The price of a cable is rarely its cost, and a company that says so puts its own price next to the cost of a stoppage, where it looks negligible.

The right-hand column asks for neither a discount nor a new product. It asks for the proof the company already has to be said out loud, from measurable industrial capacity to large partners buried in the website.

In our methodology we call this situation “the proof already exists, but it is not communicated”, and it appears in almost every audit of a mature company.

At TAMOS, the audit phrased the same move as a working rule, under which the price does not change by declaration, and what changes is the unit of value. Today’s chain started from products sold separately and ended in margin pressure, while the proposed chain started from complete solutions for a room and ended in a harder comparison.

The audit added a caution worth repeating to any company tempted to declare itself premium overnight. A premium position has to be built before it is declared, and a general price increase announced without proof only produces lost customers. Range architecture and price moves get discussed on figures, after the proof has been put in front of the customer.

How much is pricing power worth to a company?

Pricing power is worth, for a mid-sized company, the difference between its margin and the category margin, multiplied by turnover. That difference can reach hundreds of thousands or millions of lei a year. It shows what the company would keep if the customer stopped comparing it on price alone.

At NordicaMoto, a distributor of enduro gear from Odorheiu Secuiesc, the positioning audit calculated the order of magnitude of the stake. The gap between the current profit, 3.01 lei for every 100 lei sold, and 5.36 lei was worth about RON 1.73 million a year, almost three quarters of the company’s 2025 profit.

The audit stated explicitly that it shows the size of the stake and promises no result. The figure is no sales projection. It describes what leaving the comparison on price, assortment and delivery is worth in money, for a company that sells the same brands as all its competitors.

At Therezia Prodcom, a dairy producer from Panet, the situation was the opposite. The company already had a net margin of 11.51%, against 5.2% for the category average, and the Therezia audit framed the problem as a choice between two kinds of demand.

New capacity can be filled with demand that looks for the company by name and accepts its price, or with volume that gets negotiated on price.

The first kind of demand protects the 11.51% margin, and the second pushes it toward the category average. At TAMOS, the net margin had dropped from 11.45% to 4.20% in a single year, according to the public figures analyzed in the audit. The table sets the four cases side by side.

The middle column shows why none of the moves starts with price. Every unit of value proposed already exists inside the company, and the audit only made it visible and comparable. The price then mostly holds by itself, because a harder comparison makes the discount less necessary.

Globally the picture is similar. The same 2025 Simon-Kucher study shows that 86% of companies increased their revenue in 2024, yet only 68% went beyond passing costs through and raised prices actively, which is to say they had real pricing power.

How does inflation change pricing strategy?

Romania, where our clients are, is a useful case of what happens when inflation falls, and the lesson travels. Inflation gave companies a ready-made justification for every price increase. When the justification disappears, what remains is the question inflation had been hiding: what does the customer get for the price they pay?

According to the National Institute of Statistics, the annual inflation rate was 9.7% in December 2025. By August 2026 it had fallen to 6.2%, according to the institute’s release reported by Agerpres. The lower inflation goes, the more each price increase needs a different reason.

Consumers have already reacted. According to NIQ data from 62,000 stores, reported by Business Review, Romanians spent about 139.8 billion lei in 2025 on fast-moving consumer goods and consumer electronics and IT products. Volumes fell by 0.4% in the last quarter, though, and shoppers visited discount stores more often.

For a B2B company the mechanism is similar, only slower. A customer who has accepted two increases justified by costs will ask, at the third, for an explanation that inflation can no longer give. A company that justified its price only through costs has nothing to say once costs stop rising.

That moment is a window. Companies that build their price reason now, through proof and through the unit of value, enter the lower-inflation period with an argument. The others enter it with a single option, the discount. Any market where cost pressure eases will reach the same point sooner or later.

On which layers does a company’s price break?

A company’s price usually breaks on the positioning layer, though the symptoms show up first in the offer and in campaigns. That is why we read every price problem across the four layers of our methodology, from L1, performance marketing, to L4, positioning and category, with the AI Brain on L3.

The figure reads from the bottom up, in the order in which the company feels the problem, and the red floor at the top shows where it starts.

L1 · Performance marketing. Traffic attracted on price words brings in exactly the customer who will negotiate the price. At TAMOS the word “ieftina” sat in the code of the main page, so its roughly 30,000 organic visits a month began with a comparison.

L2 · Revenue and commercial process. When the offer has no other argument, the salesperson uses the only one they control, the discount. The mechanism is described at length in the article on the 4Ps as a map of decisions, where a mix without a reason ends in comparison on price.

L3 · AI Brain, orchestration. AI engines repeat what a company says about itself. A company that describes itself as “quality and good price” risks being put by ChatGPT in the same list as everyone who says the same thing.

L4 · Positioning and category. This is where everything begins. The principle we call cognitive ownership says the end goal is to own the category’s mental space, so that when the need appears the market comes to you automatically, without you competing on ads and on price. Cognitive ownership is the most durable form of pricing power.

Linked to it is the principle we call reducing cognitive cost. An unclear brand imposes a cognitive tax on every impression, and a customer who has to think hard to understand the offer picks the criterion that is simplest to see. The mechanism is explained in our article on the cost of an unclear brand.

The practical form of a position is a central attribute, one word carried through name, offer and proof, the way NordicaMoto received ENDURANCE as its attribute in the audit.

The principle we call brand as a foundation for growth says that on a correct brand foundation, every leu invested stays in the market as memory. Every discount given without that foundation is lost from margin and from memory alike.

How do you check your pricing strategy in ten minutes?

The check takes about ten minutes and has two parts, a calculation on your own figures and a reading of your own communication. The calculation tells you what a discount really costs you, and the reading tells you whether you give the customer a criterion for comparison other than price.

The calculation uses a simple formula. The extra volume needed to offset a discount equals the discount divided by the difference between your contribution margin and the discount. If your contribution margin is 30%, a 5% discount needs 20% more volume just to stay level. At a 20% margin, the same discount needs 33%.

The reading of your communication takes three questions, in order.

1. What is the first word you use to describe your product? Look for it in the site title, in the Google description and in the first line of the quote. If that word is “inexpensive”, “good price” or “quality”, the customer compares on price.
2. What outcome does your product protect at the customer? Write the outcome in one sentence and put a figure next to it, from the cost of a stoppage to time saved or risk avoided.
3. Does that outcome appear in the offer before the price? If the price comes first, the customer compares it with others’. If the outcome comes first, the price becomes one part of the calculation.

If you cannot find the outcome at the second question, the problem lies in positioning, and building the position is a different job from setting a price.

If you want to see how your company looks from the outside, on its own public figures, you can ask for a diagnostic, which gives you a score from 0 to 100 in two minutes.

A good pricing strategy is recognized, in the end, by how rarely the price has to be defended. A company that has moved the comparison to the outcome it protects talks less about discounts, because its customer is now comparing something else.

Frequently asked questions

What is a pricing strategy?

A pricing strategy is the decision about the position a company wants to occupy against its competitors when the customer compares offers, together with the rules that defend it. It sets the price level, the discount terms and the way the offer is presented, so that the customer compares the value received.

What are the main types of pricing strategies?

The three classic methods are cost-plus pricing, competitor-based pricing and value-based pricing, where the price follows the value the customer perceives. The first two start inside the company, while the third starts from what the customer compares, and it is the only one that leaves room for a premium pricing strategy and a position of your own.

What is the difference between a pricing policy and a pricing strategy?

A pricing policy holds the operating rules, meaning price lists, discounts, payment terms and the approval of exceptions. A pricing strategy is the positioning decision from which those rules derive. A pricing policy without a strategy defends a place the company did not consciously choose.

How much volume do I need to offset a price cut?

The extra volume needed equals the discount divided by the difference between the contribution margin and the discount. At a contribution margin of 30%, a 5% discount needs 20% more volume. McKinsey calculated that, for companies in the S&P 1500 index, a 5% price cut required 18.7% more volume.

How do I raise prices without losing customers?

Prices rise more easily once the offer is presented through the outcome it protects at the customer, with concrete proof, and the price appears after that outcome. An increase announced without proof produces lost customers, while an increase placed next to a measurable outcome becomes a small part of a calculation the customer accepts.