The effect of competition on pricing strategy covers the second of four posts on pricing strategy.

You can access the first post by clicking the link below:

Pricing Strategy: Extenuating Circumstances

This post answers the following questions:

• How do competitors price similar products and services?
• How do their strengths and weaknesses compare to yours?

What Is The Price Range
Of Products Like Yours?

All products have a price range from the lowest price to the highest. For some kinds of products, that range is broad while for others it is narrow.

The effect of competition on pricing strategy requires that you consider this price range and where your price should be within that price range. You determine the best price range according to your product’s strengths and weaknesses compared to competitors’ products.

How Your Price Competition
Determines Your Price

If your product has the most strengths, you can price it on the high end. If your product offers few benefits compared to competitors’, your price needs to be on the low end. So the effect of competition on pricing strategy requires an analysis of your and your competitors’ strengths and weaknesses.

Other Product Considerations

You need to know how your competitors’ quality, price, service, payment terms, location and reputation differ from yours. Because these all relate to benefits for customers.

Perhaps one of your competitors is a large corporation that sells a similar product to yours, but sells in volume for a much lower price. You can’t compete on price and still make enough profit to stay in business.

So what do you offer that will enable your product to compete? Perhaps your product provides better quality or you provide better customer service. Maybe you can offer better payment terms to induce your customers to buy. If so these become your benefits to customers. They are competitive strengths that effect your pricing strategy.

How Does Your
Product Compare?

So how do you compare to your competitors’ in strengths and weaknesses? You can visualize how you compare by making a table like the “Table To Illustrate The Effect Of Competition On Pricing Strategy” above.

Include at least your major competitors in the columns and a list of potential strengths and weaknesses in rows.

Then put a plus, minus or check mark in each column across the row for each competitor and for your own business or product. If a pricing criteria is a strength use a plus. If it’s a weakness use a minus. If it just meets expectations, use a check mark.

You can even go so far as to assign a number to each mark to get an overall score for your product and each of your competitors. For instance you could assign a three for each plus, a two for each check mark, and a one for each minus. Then add the scores for all pricing criteria to indicate each one’s competitive strength.

Or you can just look for places where you are strong and your competitors are weak. Using the table, it’s easy to see which characteristic best separates you from your competitors. Or in marketing language, you can easily determine your distinguishing characteristic. For example, the table above reveals that the business owner beats all major competitors on features and service.

That’s where the business owner has a plus, but the competitors have a minus or check mark. So this business owner’s distinguishing characteristic should be one or both of these criteria, and should determine pricing strategy and marketing activities.

Delving Further Into
Your Product’s Strengths

If you also have a features strength, you may want to do the table again for individual features to determine exactly which features offer your customers the most benefit and then make that your distinguishing characteristic.

But remember customers aren’t interested in features. They are interested in what a feature does for them or the benefit related to the feature.

If you presently don’t have a strength where your competitors are weak, determine if you can realistically and profitably develop a strength in that area. If you decide you can, then include the development of that strength in your pricing strategy and consider it in all your business and marketing decisions.

In this way you can consider the effect of competition on pricing strategy.

To get to the next post in this series, click on the following link: Pricing Strategies – Quantity Discounts

If you’re an Internet marketer, I recommend Nichebot for gathering information on your competitors. You can read a brief review that I recently wrote about Nichebot for another post.

To read the next post in this series on pricing strategy, click the link below:

Pricing Strategies – Quantity Discounts

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Posted 5-13-08:
The Effect of Competition
on Pricing Strategy

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This entry was posted on Tuesday, May 13th, 2008 at 7:19 am and is filed under Marketing Mix. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.