Competitor Pricing… Does It Matter?

“Wait… what about competitor pricing?” you ask.Who Cares About Competitor Pricing?

I recently published a post where I had the audacity to suggest that value pricing required only two inputs:

  1. The Customer’s Willingness to pay (value perception)
  2. The Customer’s Ability to pay (how, when, why, where, how)

Since I got a number of emails with the same question – “how does competitor pricing figure in?” – I thought I would let you know… well… how competitor pricing fits in.

Now I believe I said there were about a million variables that go into those two inputs to come up with a pricing model for your SaaS or Web App, so I stand by my simplification of Value Pricing.

What competitors are doing is just one of those million variables.

The key thing to remember is that competitor pricing is NOT a main input; it is just a variable.

Value Pricing, which I talk about at length in the two FREE How to Price Your SaaS or Web App: Basics and Advanced videos, is all about the customer.

::Period::

That means that when you’re gathering info to develop those main inputs, what comes out the other end might differ greatly from the what the competition is doing.

Does that mean you shouldn’t do it, then?

Of course not!

But you have to know what your competitors are charging, how they’re charging, etc.

You have to know if the customers already have a certain bias; an expectation due to market forces on what pricing to EXPECT.

If you are going up against an entrenched market leader or if there is no clear leader but everyone in the market has the same pricing model and similar prices, you will need to know what everyone else is doing so you can defend your different model IF asked.

I say IF because if you’ve done a good job aligning your pricing with the value perception of the audience, creating a high willingness to pay, they won’t question it since it just makes sense.

And it might make MORE sense than the nonsense they’ve had to deal with for decades in their industry.

You might be the first to come along who “gets it” and is willing to upset the status quo.

Or you might find that your pricing model is right in-line with everyone else and that your pricing will have to be similar to what is there.

In that case I would challenge you to figure out how to differentiate up-market (hopefully) to set yourself apart.

Why just create another me-to product?

I hope this helps clarify a bit where “competitors” fit in when developing your pricing – and marketing in general.

Focus on your customers, add tons of value, and move forward.

Don’t focus on your competition.

Cool?

BTW… the folks on my mailing list got to benefit from this article a few months ago.

Make sure you get on the list so I can send you awesome messages like this.

Lincoln

About Lincoln Murphy

I am a Customer Success-driven Growth Consultant. I wrote the Customer Success book which you can buy at Amazon. If you need help growing your SaaS, request at least a 15-minute call with me via Clarity. Be sure to join my mailing list - I send awesome stuff to the list every week or so. Also, connect with me on LinkedIn or follow me on Twitter.

Comments

  1. Nice post, Lincoln

    Your mention of differentiation to move away from me-too status is absolutely key to successful value-based pricing, IMHO.

    In the SaaS world, pricing to the value of the offering can of course lead to some nice margins. If the competition has an equivalent or better set of functionality than your own, and they’ve done a decent job of conveying their value-prop to the market, there will certainly be pressure to meet or beat the competitive pricing. Further, a highly competitive market with similar players can lead to a price war that eats away at that nice margin we enjoyed when priced at value.

    Differentiation of the offering from the competitor to bring unique value to the market is essential to avoid or lessen the need to lower prices based on what the other guys are doing. When a customer asks “why should I pay more?”, there’s few better answers than “because we have something that you want and need that nobody else does.”

    Any decent Product Manager certainly understands this concept and keeps a constant eye on the competitive landscape to establish, maintain, and grow differentiation to help ensure value-based pricing is successful.

    • Cool… funny that you say “any decent Product Manager” understands this, though. FAR too many companies fall into this trap which is why I brought it up. Sage advice is often met with “that’s so obvious”… well, if it is so obvious, why do so many get it wrong? Maybe you should say “any decent Product Manager SHOULD understand this concept”… or at least execute according to that understanding.

Trackbacks

  1. […] what your competitors are charging and how they’re charging, says Consultant Lincoln Murphy in Competitor Pricing. If you're going up against an entrenched market leader or if there is no clear leader but everyone […]

  2. […] Competitor Pricing… Does It Matter? […]

Speak Your Mind

*