How to set your price based on your competitors
We talked about why taking a Goldilocks approach to pricing is essential for your business to succeed in a previous post.
It can’t be too high (and price yourself out of the market), it can’t be too low (otherwise you send a negative signal about the quality of what you offer), it has to be just right. So how do you work that out? Well glad you asked, you are in the right place my friend, read on.
There are three main methods, market based pricing, cost based pricing and income goal pricing. In reality you need to use all three together to come up with the perfect price. We are going to take a look at the first method, the enticingly named Market Based Pricing.
Business Geek Definition Alert: Market based pricing sets the price of the product or service based on your competitors and how you want your customers to view your product or service compared to them. In other words how do you want to position yourself in the market?
Identify your competitors:
You’ll know who your competitors are from your market research. If not think of businesses that sell something similar to you that your customers might buy from instead. You are likely to have lots of competitors but who are the most similar in terms of products or service, size, target market etc. You can ask your target market who they currently buy from to help.
Rank your competitors:
Rank them from most expensive to least expensive and list their attributes e.g. what are the strengths and weaknesses.
Justify their market position:
For the higher priced ones why can they charge a higher price, do they offer better customer service, more luxurious packaging, more bonus services? For the ones at the lower end of the market, what are they doing that is different? Why do they charge less? This is not about the higher priced ones being better, it is just looking at why each competitor is charging the price they charge.
Where do you see yourself fitting in this market?
For each competitor on the scale you should consider:
- Are you higher or lower quality?
- Do you provide faster or slower delivery?
- Do you envision yourself being cheaper, more expensive or the same price?
- Do you offer a better service? Or an additional service?
- How are you better than your competitors?
- How are you worse than your competitors?
You are basically playing a huge game of higher or lower. By thinking through these areas you will be able to place yourself on the scale and get an idea of the price the market will pay for your product or service.
In the next blog we will talk about how to work out your perfect price based on your costs and there will be a bonus included to help you implement this in your business.
Where do you see yourself fitting into your market? Comment below now, i’d love to know.
Got a question, then book in your FREE strategy call, I would love to help you with your pricing and answer questions specific to your business