Why Slashing Product Prices Is Usually A Terrible Idea

Warren Buffett is an aggressive pricer. He mostly leaves the managers of Berkshire Hathaway’s portfolio companies alone, but when it comes to setting prices at companies including See’s Candies and the Buffalo News, he has often liked to be involved. “The manager has just one business,” he once explained to Fortune. “His equation tells him that if he prices a little too low, it’s not that serious. But if he prices too high, he sees himself screwing up the only thing in his life.” Such excessive risk aversion leaves money on the table, Buffett figures, so he often pushes for higher prices. More often than not, he’s right. Even in a historic downturn, Buffett’s instinct is worth keeping in mind. Many managers underestimate the power of pricing, and the unanimous advice from pricing experts in this troubled economy is to price with courage and creativity. In businesses where demand has plunged, slashing prices may be a terrible idea—and it may not be necessary at all. Read more at Fortune.