Strong Brands Raise Prices

Mohnish Pabrai shares insights about brand power through the story of See's Candies, demonstrating how strong brands can command pricing power while maintaining or growing volume, leading to exceptional business performance.

Key Points:

• See's Candies Price Control Strategy:

  • Warren Buffett personally set prices every December 26th for the next year
  • Consistently raised prices 10-15% annually when inflation was only 3%
  • Surprisingly, sales volumes increased despite significant price increases
  • Demonstrated extraordinary pricing power due to brand strength

• Key Business Learnings:

  • Strong brands can raise prices significantly above inflation without customer resistance
  • This pricing power transformed Buffett and Munger's investment philosophy
  • Moved them from pure value investing to understanding the power of brands
  • Led to other major brand investments like Coca-Cola

• See's Performance Metrics:

  • Purchased for $25M but could have paid $200M and still been profitable
  • Has sent billions in dividends to Berkshire over 50 years
  • Maintained steady 2% annual volume growth over 50 years
  • Most sales remained concentrated in California despite expansion attempts

• Strategic Impact:

  • See's experience influenced Berkshire's $1B investment in Coca-Cola in 1988
  • Taught them about brands that could "travel well" globally
  • Led to understanding difference between regional brands (See's) and global brands (Coke)
  • Demonstrated importance of consumer behavior and brand loyalty

• Brand Characteristics:

  • Strong brands can command premium pricing
  • Customer loyalty allows for consistent price increases
  • Geographic limitations may exist for some brands
  • Brand strength can overcome price sensitivity