The “Eastern” counterpart, on the other hand, emphasises the Value Virtue – that is, instead of simply charging customers more just because, this paradigm focuses on providing better services/ making more relevant products. They demand that they contribute more value to customers.
The interesting question here is when human beings sense that they are getting an honest good deal, will it make it easier for them to willingly pay more?
Suppose you are the customer in question, do you prefer companies that demand you pay more, or those that create a product you willingly pay more for?
An unfortunate live comparison might be the housing situation in Hong Kong – the property developers, having built their land bank over many years, one way or another, now have so much pricing power that they can influence how many residential units get introduced to the market at any time. Quite literally, their customers can only take it or leave it.
Interestingly, the property yield of residential properties are now priced at ~2% range, which in layman’s term means current unit buyers need 50 years of rental income to breakeven on their cost. Mind you, HK leases are now 60 years long…
Should investors see these businesses as having supreme pricing power and strong moats? Or might there be more pressure like what happened with the aforementioned pharma companies?