The See's Candy Principle

The See's Candy Principle is Buffett's framework for evaluating whether a business has durable competitive advantages (an "economic moat"). The test is simple: If a business can raise prices without losing customers, it has pricing power — and therefore likely has a moat.

The See's Candy Origin

The Acquisition (1972)

Buffett acquired See's Candy for $25 million: -，当时年收益约$2M

• Seemed expensive by traditional metrics
• But See's had a crucial trait: pricing power

Why It Worked

See's could raise prices and customers would still buy:

• Emotional gift-giving occasions
• Quality reputation
• Limited competition in premium boxed chocolate

Since 1972, See's has earned over $2 billion on the $25 million investment.

The Test

The Principle

"The test is whether they can raise prices 10% tomorrow and not lose customers."

Three questions:

1. Can the business raise prices without significant customer loss?
2. Would raising prices increase profits?
3. Is the competitive advantage durable?

Applying the Test

Business	Raises Prices?	Moat?
See's Candy	Yes, repeatedly	Yes
Commodity producer	No	No
Regulated utility	Limited	Partial
Brand-name consumer	Often yes	Yes

Why Pricing Power Matters

Indicator of Moat

Businesses with pricing power have:

• Brand strength — Customers pay premium
• Switching costs — Too costly to change
• Network effects — More valuable with scale
• Cost advantages — Lower costs than competitors

Value Creation

"The ability to raise prices is often a sign of a wonderful business."

If a business can't raise prices, it's competing on price — which erodes returns.

Famous Quotes

"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."

Related

• moat — Competitive advantages
• compounding — Reinvestment returns
• capital-allocation — Acquisition framework