“Wait… what about competitor pricing?” you ask.
I recently published a post where I had the audacity to suggest that value pricing required only two inputs:
- The Customer’s Willingness to pay (value perception)
- 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.
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.
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.