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Setting the right price for your products or services can really feel like a tightrope walk sometimes. Too high, and you might discourage customers from buying your products. But charge too little, and you lose profits. So what can you do?
That’s where competitor pricing comes into play. With this strategy, you could pinpoint the ideal price that could help you bring more customers to your brand and have a stable profit while also giving you a competitive advantage.
Interested? Keep reading - in this blog post, we will look closely at what competitor pricing is and how you can use competitors’ prices to tailor your pricing strategy.
Competitor pricing is when you look at how much your competitors charge for similar products or services and then adjust your prices based on that information rather than focus solely on the production costs. Depending on your goals, you can price your items lower to draw more people in, or you can go higher if you offer something extra that makes your product better than your competitor’s.
Here’s a straightforward example to show how competitor pricing works in practice.
Let’s say you own a SaaS company that offers project management tools. While looking at the rivals, you discover there are three leading brands you will compete with:
After analyzing these services, you find that your software has more features than Competitor A but fewer than Competitor C. So you might decide that $17 a month for your service would be the best price. This price point suggests to potential customers that your tool offers more value than the cheapest tool but is more affordable than the most expensive one.
Of course, you shouldn’t set your prices based just on what you found on the competitor’s website. Instead, you need to do a bit more research to find out why exactly they are charging their users this way - we’ll mention the steps you should follow in a moment.
Before we get to how you can take advantage of the competitors' pricing strategy, we’ll need to answer the questions why you should even do it. And the answer is pretty simple - because your potential customers know exactly how to make sure they are getting the best deal.
PowerReviews, in their 2023 survey, found that 74% of consumers are now spending more time on research before they purchase a product or service - including checking and comparing prices in different stores or providers.
If you focus just on your own expenses, then it might turn out that your prices are either higher than the competitors (and thus, the consumers will pick them to save money) or are much lower. In the latter case, the consumer might decide to buy your product, but you won’t earn much from the sales.
If you know how much others are charging though, then you can set your prices in a way that makes sense and attracts customers. Maybe you offer something no one else has and can charge a bit more. Or perhaps you want to be the budget-friendly choice and charge less. Either way, you’ll know where you stand among your competitors and can tailor your pricing to match the situation on the market - so your chances to sell your products grow significantly.
Besides knowing what your competitors offer, you also need to figure out how exactly you want to attract people to your product. There are 4 main ways in which you can use competitive pricing for that goal:
Price skimming is a strategy where you initially charge a high price for a new product and then gradually lower it over time. The idea is to “skim” off the top layer of customers willing to pay more at first. Apple is a master of price skimming tactics - they first offer their newest products at higher prices when the demand is high and then gradually lower those.
Example: You are launching a groundbreaking project management tool with features that no other competitor has. You could start by charging $50 per user per month. As the novelty wears off and more competitors begin to offer similar features, you can lower your price to $30 per user to attract a broader audience.
Penetration pricing aims to capture a significant market share quickly by setting an initially low price and then raising the prices once they get a stable user base. The idea is to attract as many customers as possible, even if it means less profit in the short term.
Example: An email marketing software platform might offer a promotional price of $5 per user for the first month. After the month passes and users want to continue using your platform, you might then increase the price to $15 per user per month.
Another strategy Apple is excellent at - premium pricing. In premium pricing, you set a high price to establish your product as superior in quality, features, or prestige. This strategy works best when you offer something unique or limited amounts that people are willing to pay more for.
Example: You are selling cybersecurity software with cutting-edge features no other competitor has. You could charge a premium price of $60 per user per month because customers who prioritize security will be willing to pay extra for the peace of mind your product offers.
The loss leader pricing strategy involves selling a product at a loss to attract customers, with the expectation that they’ll also buy other, more profitable products, together.
Example: You could offer essential data storage services for free, hoping to attract a large user base. Once these users are on your platform, they’re more likely to purchase added-value services like advanced analytics or extra storage, where you make a bigger profit.
We already mentioned in the earlier paragraph the biggest benefit of using competitor pricing - you know your place in the market. But let’s think about it from the research perspective.
Competitor pricing basically gives you an (almost!) ready-made framework for estimating your own prices. Instead of conducting elaborate market research or testing multiple pricing models, you can quickly get a sense of what pricing models and strategies providers of similar products or services have. This speeds up the decision-making process and can make it easier and faster for you to enter the market. This strategy can be especially useful for new businesses that are trying to gain a foothold in the market and don’t have much data to work with yet.
Additionally, positioning your product prices close to your competitors’ can make customers more comfortable. They might already be familiar with the price range and accept it, so there’s a higher chance they might want to try out your product or service if your prices are competitive.
However, there are also some downsides to relying solely on competitor pricing. The main one is that unfortunately, you most likely won’t be able to find out everything that comes into their pricing - such as their overhead costs. That means that it might turn out that you can’t afford to sell your product at a lower price than them without significant losses.
Second, competitor pricing doesn’t take into account the unique value or features that your product might offer. If your product or service has unique qualities that set it apart, you could potentially charge a premium for it—but you’d miss out on that opportunity if you base your price solely on what competitors are charging.
So here we recommend first researching and estimating your product's value and only using competitor pricing to adjust the prices rather than making those a deciding factor.
The last thing we’ll look at is how exactly you can use competitor pricing to determine the prices for your products. Be prepared you’ll have to do some research here - but the effort will be more than worth it as you will have all the data you need to determine your own pricing.
The very first thing you need to do is figure out who your competitors are. This may seem simple, but it’s important to focus on companies that are similar to your own in terms of size, target audience, and product features. If you, as a newly launched SaaS company would try to match the price range of a company that is already on the market for 7 years, that could only end up in you suffering losses. So instead of comparing yourself to the big and well-known brands, focus on brands that are of similar size.
After pinpointing who your main competitors are, your next job is to investigate how much they charge for their products or services. This step will take a bit more work than just looking at a pricing section on their website. You might need to subscribe to their newsletters, go through their checkout process, or even call their sales department if the company doesn’t have the pricing available for everyone.
Looking through customer reviews is a good idea too, though from those you might only get some basic information about the pricing structure.
With pricing information in hand, your next task is to understand what exactly customers are getting for their money from each competitor. Does one service offer free customer support, but another charges for it? Does one product have a feature that no one else offers? What features or functionalities does your product have that make you stand out from the rest? Noting down and comparing those features will make it easier to determine how much your product might be worth for the users.
Of course, you need to know what it costs you to produce or offer your service as well. This includes everything from materials and labor to administrative costs and any other overhead costs you have - such as electric bills. Plus, researching your own costs will also ensure you won’t set the price too low, and the sales won’t even cover your expenses.
Now that you know how much competitors charge and what your costs are, it’s time to decide which strategy you will use. Do you want a price matching your competitors’ prices? Undercut them to gain market share quickly, or maybe your product has unique features, and you can charge a premium price? With all the data you have gathered up to now, determining which strategy will be the best fit and how much you should charge for your product much smoother.
Our last advice - you can’t set your price and forget about it. Markets, trends, and customer preferences change. Competitors adjust their strategies, and so their price changes as well. So you should regularly review your pricing compared to competitors and be ready to adjust as needed.
Do you need a bit more guidance with figuring our up your own product prices or updating your current pricing strategy? Our knowledge and experience will come in handy here. Reach out to us through the contact field on our website, and we’ll schedule a call to learn more about your business and needs.
You could just decide on your product or service prices based on your production costs, and that’s it. But now, when so many brands are vying for the consumer’s attention, ignoring your competitors isn’t the smartest move. Analyzing their pricing data meanwhile can give you plenty of information you can use for your business and product advantage - and this way, make your offer stand out in the crowded market.
And in case you have any trouble gathering and understanding the data about your business rivals, at Valueships we can lend a helping hand - all to make your business grow.
A competitor pricing strategy is a pricing method in which a company decides how to price its products based on the prevailing market price and what competitors are charging. For this strategy, brands have to gather competitor data, analyze it, and then compare it with their own product data.
Competition-based pricing strategy gives you plenty of data on the market, rival companies, customer preferences, and the competitive landscape in your chosen sector. With the data, you can then price your products in a way that allows you to attract more people to your brand and stay competitive.
However, you shouldn’t rely solely on the data you get from analyzing competitors’ pricing strategies but also include your product value in the price estimation, as otherwise you might be losing profits.
Implementing a competitive pricing strategy helps businesses find out how their products are priced compared to the rival brands and find the ideal price point that brings more people to their product or service rather than to the competitors' products. Plus, competitive pricing can also boost marketing strategy efforts, as business owners know what their competitors are offering and what are their own strong points they should promote.
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Certified expert in price, revenue and margin management in B2B companies and e-commerce. Member of the prestigious Professional Pricing Society. At Valueships, he is responsible for the implementation of consulting projects and taking care of the profitability of clients. Prior to joining Valueships, he worked at McKinsey & Company in the area of pricing and strategy.
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Certified expert in price, revenue and margin management in B2B companies and e-commerce. Member of the prestigious Professional Pricing Society. At Valueships, he is responsible for the implementation of consulting projects and taking care of the profitability of clients. Prior to joining Valueships, he worked at McKinsey & Company in the area of pricing and strategy.
