Costco (NASDAQ: COST) is a perfect example of a company with strong pricing power. It has an extremely loyal customer base, as evidenced by its 92% membership renewal rate, and it sells products that everyone needs.
If you combine that with its growing e-commerce business (which saw 14% revenue growth last quarter), you have a high-quality business that is not only ready to weather the inflationary storm, but also to reach new heights.
2. Network effects
Network effects are one of the most powerful economic gaps. It is a phenomenon where the value of a service or product improves as more participants join.
The most obvious example of a network effect is the telephone. There was very little value when Alexander Graham Bell invented the first telephone because no one else in the world had one. But as more and more people started using the phone, the value of the network grew exponentially.
One of the most powerful network effects in the world today can be seen in payment processing companies such as Visa (NYSE:V). The more merchants that accept Visa cards, the more account holders are likely to use the cards and vice versa. The convenience, security and rewards programs enjoyed by cardholders make inflation very unlikely to have a substantial impact on this business, as evidenced by the 16% increase in Visa payment volume in 2021.