Pricing Power (pt. 2) – Intellectual Property

The skinny of "Pricing Power #1 - Client Ownership" is that pricing power in a services industry is found in your proximity to the client relationship, not the product that the client is buying. The problem, of course, is that it's really really hard to scale client relationships, or at least it's hard to scale the relationships that are worth scaling.

The skinny of "Pricing Power #2 - Intellectual Property" is something of the reverse. If you ARE on the product side of your industry, then the only way to maintain pricing power is through narrative-rich if not mythic intellectual property. Conversely, relationship owners always think that they can scale their nice little businesses with technology and IP. They are always wrong. With one exception, which I'll hold off for a big reveal at the end.

IP is useful in preserving pricing power on the product side of financial services in the same way that giant castle walls are useful in preserving medieval power in a Monty Python movie. I suppose that's pretty obvious. If you own something special that others can't legally own, too, then you can charge more for it, or at least keep others from undercutting your price by offering a similar but less special product. But I'm saying something beyond that.

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  1. Avatar for fvc fvc says:

    Market downturn?

    “Run Away! Run Away… :)” {Apologies to Monty Python}

    Perhaps a way for robo-advisors to stop knee jerk sell actions by clients is behavioural “nudges” like exit fees or phased withdrawals to keep the investor on track. The problem given past fee excesses by the industry this will look very self serving. Another approach are loyalty bonuses but this will eat margins. Nevertheless, you are right Ben given how much money has flown into passive at the market valuation tops, the next correction will test investor resolve and market liquidity. We might see an “Beast of Caerbannog” asset fire sale spiral in stocks widely held in indices.

    Family owned stock with poor free float, not in indices as they do not aid index companies create ETF product or indices, may be better havens when market crunch hits.

Continue the discussion at the Epsilon Theory Forum


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