7/11/2023 0 Comments Competitor pricing strategy![]() When you apply this to your own pricing, ask yourself what kind of value your product or service offers. When demand is high and seats are limited, the airlines can afford to charge higher prices for lower-quality seats, counting on the fact that you'll pay full price for a terrible seat if it's your only option. Value prices occur when quality is higher than price-when you fly during off-peak times or get upgraded to first class for free. First-class tickets offer high quality at a high price, economy tickets offer low quality at a low price, and everyone else gets piled into coach. Normally, price and quality will align with one another. One of the easiest industries for demonstrating this concept is the airline industry, because there's no way to mistake the difference between a high- and low-quality purchase when there's a literal curtain dividing them. There are buyers at every price and quality level what matters is how your product quality and price are positioned with respect to each other. It's a common misconception that businesses have to sell good-quality products to be successful. As you gather this information, keep a spreadsheet where you can record prices and note things like introductory offers, loyalty programs, and discounts. It's usually not difficult to find out what your competitors charge-either by visiting their websites or by calling them to ask. But no matter how you decide to position your product, you'll need to stay up-to-date on what your competitors charge, pricing trends in your industry, and what pricing models work best for your market. Where you fall on either side of this trade-off determines your value position, which we'll discuss in a bit. Your products don't always need to be quality, but if they're low-quality, you'll need to be able to justify it with lower prices. Your prices don't always need to be lower than your competitors', but if they are higher, you need to be able to justify it with added quality. He said, "What's your point of difference?" In other words, in a crowded marketplace, how are you going to stand out? I clearly remember something my then-CEO asked me when I was in the early stages of planning the launch of my own business. Businesses in volatile industries will need to build a survival cushion into their profit margins to make sure they have enough funds to stay in business during slow periods. ![]() Learn what to keep an eye on in the news so that you can plan ahead for spiked supply costs or dips in demand. Businesses that rely directly on commodities as supplies-so things like lumber, oil, and metals-will be most vulnerable to economic fluctuations, but all industries are affected in some way or another by global, political, and social changes.įigure out what economic conditions are good for your business and what events could affect your supply and demand. When costs change, your prices will have to change in order to stay competitive and keep making a profit. Software and services for things like accounting, marketing, and legal ![]() Overhead costs (rent, insurance, utilities, taxes, etc.) When calculating costs, make sure you include:Įmployee wages (that includes what you pay yourself!) If your prices aren't higher than your costs, you'll be out of business before you even get your company off the ground. ![]() I know I just said cost wasn't the only factor to consider, but it is the most important one to start with. But unfortunately, it's not that simple: there are a lot of factors you'll need to consider in order to determine the best pricing strategy for you. You likely know off the bat that you'll need to consider your own business costs and competitor prices so that you can find a price that earns a profit but isn't so high that it drives potential customers to other businesses with better deals. Factors to consider when pricing a product But you'll spend a lot less time and money starting with a pricing analysis than you will taking a complete shot in the dark. Sure, you could just trial-and-error a bunch of prices until you find the price that maximizes profit without deterring potential customers-and there will probably still be some of that even after you choose a pricing strategy for your business. The goal is to set a price that will entice customers to buy, but that isn't so low that you're not making a profit. ![]() The pricing page on my website What is a pricing strategy?Ī pricing strategy is a plan for setting the best price for your products or services. ![]()
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