You have poured your heart and soul into crafting the perfect product or service. But there is one hurdle left to clear: the price tag. Striking the right balance between profitability and attracting customers is vital. This is where competitor pricing analysis comes in.
Understanding how your competitors price their products and services can provide valuable insights to inform your pricing strategy. This blog post will provide six practical ways to analyze and leverage competitor pricing, from identifying key competitors to implementing and testing new pricing strategies.
Who Are Your Competitors?
Not all competitors are created equal. Targeting the wrong ones can skew your analysis worse than a faulty scale. Here’s how to identify the businesses you should focus on:
Market Research
Dive into the world of your industry to find out who the major players are. This involves conducting market research to understand both the established companies and the new, innovative firms entering the market. Start by conducting online searches, reading industry reports, and attending industry conferences or trade shows.
Leaders and Disruptors
Analyze industry leaders for established pricing models and brand perception. However, do not ignore the up-and-comers offering unique value propositions at disruptive price points. These companies often indicate future trends and shifts in the market.
Customer Targeting and Brand Perception
Consider who your ideal customer is and which brands they are likely to compare you to. This includes direct competitors and companies offering substitute products or services. Think outside the box – what other products or services might solve your customer’s problem?
By thoroughly researching your competitors across these areas, you lay the foundation for crafting a winning pricing strategy for your small business.
Decoding Pricing Structures
Once you have a list of key competitors, it is time to examine their pricing structures. Here are some common structures to look for:
• Freemium: This model offers a basic version of the product or service for free, with premium features requiring a paid subscription. Think Spotify – free music with ads, or premium for ad-free listening and on-demand playback.
• Subscription: Customers pay a recurring fee, often monthly (known as Monthly Recurring Revenue or MRR), for access to the product or service. This model is popular for software and services that require ongoing use, like design tools or fitness apps. Frequently, subscription plans come with tiered pricing, offering different feature sets at various price points.
• Pay-Per-Use: This model allows customers to pay only for what they use. It is ideal for products with variable usage patterns, like cloud storage, where you only pay for the storage space you actually use.
Understanding how your competitors price their products and their target audience with each model is crucial for crafting your strategy. Additionally, there are online tools that can help you track competitor prices automatically, saving you valuable time for creative marketing ideas.
Value Proposition
Sure, price is important. But for your small business to thrive, you must understand the in-depth value you bring that resonates with your customers.
Value Proposition
Your value proposition is your product or service’s core benefit and the problem it solves. This is what makes your product unique. Analyze competitor marketing materials and customer reviews to understand how they position themselves. What problems are they solving, and how do they frame their value proposition?
Perceived Value
Your perceived value is how much customers believe your product or service is worth. Compare your product’s features and benefits to your competitors’ offerings. Are there unique features you can highlight to justify a higher price point? Perhaps your handcrafted chocolates use ethically sourced ingredients, or your local brewery offers an exceptional craft beer experience. Highlight these differentiators to claim your rightful value in the market.
Promotions and Discounts
Competitor pricing goes beyond just the base price. Consider how they use promotions and discounts to attract customers:
• Seasonal Sales: Many businesses offer discounts during holidays or specific times of the year. Track these promotions to understand their impact and potential for customer acquisition. Are they offering a flash sale on Black Friday, or a back-to-school discount for students?
• Bundle Deals: Competitors might bundle products or services together at a discounted price. Analyze these bundles to see if you can offer similar customer incentives at a competitive price point. Do they offer a haircut, shave, and beard trim package? Can you create a bundle of your most popular design templates for graphic designers?
• Frequency and Effectiveness: How often do your competitors offer promotions? Are they effective in driving sales? Understanding these patterns can help you decide when and how to implement your own promotions. Do their discounts generate a lot of buzz, or are they constantly discounting because their base price is too high?
Crafting Your Pricing Strategy
Now that you have unearthed valuable competitor intel, it is time to craft your unique pricing strategy. Remember, there is no magic formula – the key is finding the sweet spot that attracts customers while ensuring your business thrives. Here are some approaches to consider:
• Price Matching: Matching competitor prices can be a starting point to attract budget-conscious customers. However, proceed with caution. Once you establish your brand value, aim to move beyond it and claim your rightful price.
• Value-Based Pricing: This strategy focuses on the true value your product or service delivers to customers. Price your offering based on the problem you solve and your positive impact, not just competitor pricing.
• Premium Pricing: Consider premium pricing if your product boasts superior quality or unique features. This strategy positions your brand at a higher tier and emphasizes exclusivity. Think about high-end handcrafted furniture stores; they charge a premium for the artistry and bespoke nature of their pieces.
Your pricing strategy needs to consider all your business costs: how much it takes to make your product, your running costs (rent, salaries, etc.), and how much profit you want to make. This will help you set prices that keep your business healthy in the long run.
There is also something called “price elasticity of demand” to consider. This is a fancy way of saying how much people care about price. If your ideal customer is super price-sensitive, you might need to adjust your pricing strategy accordingly.
Where Do We Go From Here?
Competitor pricing and analysis are powerful, but this is just one piece of the pricing puzzle. The market changes fast, so be flexible with your pricing strategy. Continuously monitor your competitors’ pricing and tactics, and stay on top of industry trends. To gain an even deeper understanding of the business pricing puzzle, consider enrolling in community-based business classes such as CO.STARTERS online academy or local accelerators. By staying in tune with the market’s ever-changing rhythm, you can lock down the pricing sweet spot and keep your business thriving for years to come.
How FINSYNC Can Help
There are three primary ways FINSYNC helps business owners. (1) CO.STARTERS courses through FINSYNC can help turn your business idea or side hustle into a thriving business. (2) You can apply for a business bank account on our website. (3) FINSYNC’s software allows you to run your business on One Platform – invoice customers, pay bills, process payroll, automate accounting, and manage cash flow. Contact us today to learn more about how we can help your business start, scale, and succeed.