We’ve talked before about the importance of your competitive positioning strategy, of understanding the market landscape, its opportunities, and working to fill them.
When you do this well, you position yourself to capture as much underserved market share as possible, maximizing your growth potential by working smarter, not harder.
But if you’re to do that, there’s one crucial element you cannot overlook. Your pricing strategy.
The article gives you an overview of competitive pricing intelligence.
We teach you:
... and more.
Competitive pricing intelligence? What’s that?
Competitive pricing intelligence is data on your competitor’s prices. It’s as simple as that. Whether you’re selling personal training services online, leather jackets on the highstreet, or software as a service to businesses, pricing intelligence is just information about what your competitors are charging.
Alright, so far so simple. Why should you care about it?
Why is competitive pricing intelligence important?
Though simple, information about your competitors’ prices is powerful. Let’s discuss why.
First, there’s the obvious. When you know what your competitors are charging for products and services similar to yours, you have an idea of how to benchmark yourself.
But a solid pricing strategy goes far beyond pinning your prices in the ballpark of your closest competitors.
That’s why competitor price data is best viewed in context. That context being the other info you’ve got on your competitors. Together, price data and other intel pushes you towards a complete understanding of your competitors’ pricing strategies.
Second, you can learn a lot about a product by its price. You can also learn a lot about how the business wants the market to perceive its product. In other words, you’ll learn about their positioning strategy.
Understanding competitor positioning strategies is a great springboard for developing your own positioning strategy. Essential if you want to dominate your own subsection of the market.
What is a competitive pricing strategy?
Your competitive pricing strategy is the set of strategic decisions you make about the price of a product or service in an effort to drive more sales and profitability, capture more market share, or more competitively position your brand and your products.
Again, you can tell a lot about a product or service by its price. Everyone loves a bargain, but there’s a ton of research indicating that price affects perception.
Pricing and perception
In one study, 140 participants were served three wines, each at different price points: one cheap, one expensive, one in the middle.
The catch? The prices were entirely made up. The results showed that deceptively marking up the price of a wine boosted its ratings.
The same goes for reviews, too. Consumers’ ratings of wine improved if they had been shown positive reviews by experts first, and decreased if they were shown negative reviews.
If this is true, higher prices make for better products.
These findings have all sorts of fascinating implications for consumer behavior. One possible conclusion is the positive reviews and/or the high prices affected consumer perceptions to actually improve their experience.
If this is true, higher prices literally make for better products. After all, if someone enjoys their meal more, because they feel they’re treating themselves to expensive, fine wine, then it was worth what they paid for it. Regardless of how much a restaurant marks up the price.
Everyone loves a bargain! Or do they?
So what does this have to do with your pricing strategy?
As we’ve seen, pricing has an awful lot to do with perception, but pricing isn’t the only way you try to affect buyer perceptions. Your whole positioning strategy is built around this, too.
Some of your competitors will position themselves as the ‘budget’ option. That comes with a bunch of associations and implications, both positive and negative.
But there’s a section of the market that needs a solution and loves a good bargain. They’ll be more open to the positive associations, and more oblivious to the negative ones. They’ll be less put off by the tradeoff in features, or customer service quality, and more attracted to the low price point.
On the other hand, there’s a section of the market looking to pay high prices. They’d rather spend a big chunk of the budget on something that offers value in the form of peace of mind, reliability, and personable customer service reps. In exchange, they’re willing to pay ten or even a hundred times the price of the budget option.
Building your strategy
Your competitive pricing strategy is a subset of your competitive positioning strategy. When it comes to marketing, pricing is a part of positioning. Pricing affects everything from how enticing your offer is to how your brand is perceived as a whole.
When you price your products properly, as part of an overarching strategy, it won’t matter whether you’re outrageously expensive or losing money on every initial unit. If the strategy as a whole is sound, the price becomes a hook, grabbing people’s attention and emotions and urging them to examine the deal further.
Let’s say you’re an SEO consultancy. All your competitors charge high prices from the outset. You want to differentiate, so you offer a free audit to businesses to generate leads.
That’s where the strategy really kicks in. You funnel all these leads to an upsell in the form of a one-time consult call with you to run through the results. After demonstrating the value of this kind of consult call, you upsell the takers into further calls. Perhaps at biweekly intervals for more advice and accountability.
Separately, you put all leads into another email funnel with information about your technical SEO makeover service. With this service, you remap website folder structure to make it more crawlable by search engines, improve site speed, and perform a bunch of other neat tricks to rapidly boost rankings.
On the initial consultation, you lose money, sure. But your initial offer is so much more attractive than the competition that you generate more than enough converting leads. So many, in fact, that you offset your losses with a ton of margin leftover. And when you take lifetime value (LTV) into account? Then you’re really winning.
How do you do a competitive pricing analysis?
So - a competitive pricing analysis sounds pretty cool, huh?
We thought so too, which is why we’d be letting you down if we didn’t tell you how to perform one. Here's how you do it. 👇
Collection and Analysis of Competitor Pricing Data
It all starts with collecting competitor pricing data.
We’re not gonna lie - this step is hard. The ethics of competitive intelligence can be a bit murky, but it’s up to you to make sure you’re not getting hold of any information you shouldn’t have access to.
Even secret shopping is a gray area. It’s far better to be open and honest about who you are. If you’re signing up for a free trial, don’t hide your business email address.
So, how do you go about collecting this competitor data?
First, a lot can come from the ‘field’. There’s a lot to be said for ‘crowdsourcing’ your CI efforts, and that holds true for gathering competitor pricing information. That means talking to customers, as well as finding out what your colleagues in your business know.
Second, information can be grabbed from competitor websites, and sometimes even with the help of your competitive intelligence tool of choice. Price monitoring software is out there to help you, but you can always have your dev team build you your own dynamic pricing strategy.
Pricing data you can gather doesn’t just have to include product prices, though. It can also include data like:
- Discounted pricing.
- When particular discounts and promotions run.
- Who these promotions and discounts are offered to.
Once you’ve collected as much data as you can, it’s time to analyze what you've got.
As we alluded to previously, this involves viewing the pricing information you’ve got in context. That means in the context of each competitors’ positioning strategy as a whole. It also means comparing pricing strategies between competitors.
Goals and benefits of Competitive Pricing Intelligence
Alright, but what are you actually trying to achieve with a pricing analysis?
Here are a few of the key goals:
1) Increase Revenue
Better pricing strategies mean better positioning strategies, which means a more concrete chunk of the market can be yours to own.
When you own a particular chunk of the market, you’re said to have a niche competitive advantage. Just like it sounds, a competitive advantage means you’ve got an edge the competition doesn’t. If you can sustain that competitive advantage, it means an even higher probability of increasing your revenue over time.
2) Stay Competitive in the Market
Like any strategy, your pricing strategy is there to help you win.
Data on how your competitors price their products helps you make more informed pricing decisions about your own, leading to better pricing and positioning strategies overall.
And, as we’ve implied throughout this article, a strong competitive positioning strategy gives you your best shot at dominating a specific niche in the market. You’ll avoid competition where it’s unnecessary, and win where it’s unavoidable.
3) Gain Insights into Market Trends and Consumer Behaviour
Think you, or your boss, chooses the prices of your products? Think again. The influence of the market is much greater than you might think.
Supply and demand influences prices. As much as you might want to take the spot of the most expensive, most premium product in your category, you have to turn a profit at the end of the day. If the market disagrees with you about what your product is worth, and there’s no demand for it at that price, you’ll have a hard time making money.
But consumer perceptions of value change over time as supply and demand shifts. If you weather a financial downturn, for example, but your main competitor doesn’t, customers now have one solution fewer to choose from. As such, you’ll be in greater demand and be able to charge more as a result.
Viewing your competitors’ pricing decisions through this lens is enlightening. Trending fluctuations in their product prices over time can reveal information about consumer sentiment and supply and demand.
4) Avoid Price Wars with Competitors
The ‘race to the bottom’ never works. When a business doesn’t know its value, it thinks being the cheapest is the only way to win. Most often, they peg the price right below the current cheapest competitor.
This is a losing strategy. Positioning your product as a commodity only works if you’ve got deep pockets, the experience to play the long game (and win), and if you’ve built your business around this strategy from the start.
If your business isn’t built from the ground up to manufacture, process, market, and fulfill its services and products as cheaply as possible, your margins will be too small. When you start driving prices down, they’ll quickly dip into the negative.
A smart marketing team can create a positioning strategy that makes the most of your unique differentiators. Combine that with a bit of competitive intelligence, and you’ll have yourself a smart competitive positioning strategy.
