Pricing is one of the most important elements of any business strategy. Setting the right prices for your products and services is crucial for maintaining profitability and competitiveness. A key part of developing an effective pricing strategy is analyzing what your competitors charge for similar offerings. Here are some tips on how to conduct comprehensive competitor pricing analysis:
1. Identify your key competitors
The initial phase involves identifying your primary competitors, focusing on businesses that offer products and services akin to yours and cater to a similar customer base. This encompasses both direct and indirect competitors. Incorporate competitor price monitoring to understand their strategies and how they position themselves in the market. Look at both direct and indirect competitors in the following ways:
– Direct competitors – Companies that offer almost identical products and services aimed at the same core customer group. These pose the biggest pricing pressure.
– Indirect competitors – Companies that sell alternate products or solutions for meeting the same consumer need. They provide options customers can switch to.
– Budget competitors – Companies targeting the most price-sensitive segments of your customer base. They compete mainly on low pricing.
– Premium competitors – Companies focused on high-end market segments and compete on quality, features, or status.
– Geographic competitors – Companies selling in the same geographic markets or regions where you compete.
– Category competitors – Companies that sell adjacent or tangential products that could potentially threaten your market.
Carefully analyze competitors in each segment above and rank them according to their market share, reputation, similarity of offerings, and threat to your business. This provides a robust framework for identifying pricing competition.
2. Gather wide-ranging competitor pricing data
Once you have identified your key competitor set, thoroughly gather their pricing data from various sources:
– Competitor websites – Check all pricing pages in detail for rates, deals, discounts etc. Sign up for accounts to see customer pricing if possible.
– Price comparison sites – Use aggregators specific to your industry to find compiled pricing data.
– Resellers/channel partners – Get competitor pricing info from retailers, dealers, distributors, and other middlemen.
– Paid pricing data services – Use specialist competitive intelligence services that gather and sell detailed pricing data.
– Customers – Connect with your shared customer base to learn what competitors charge them. Offer surveys or incentives to participate.
– Public filings – Competitor financial documents sometimes include pricing and rate details.
– Sales reps – Your sales teams often gather competitor pricing intel while interacting with prospects.
– Mystery shopping – Pose as customers to obtain quotes and experience the full purchasing process.
– Marketing materials – Sign up for competitor promotions to get pricing updates directly from them.
Capture all the nitty-gritty details – list prices, bulk discounts, financing, terms, fees, promotions, bundles, options – for their entire product/service range over an extended time period.
3. Organize competitor pricing data for comparison
Compile your exhaustive competitor pricing research into a master spreadsheet or database to compare their rates, discounts, and offers side-by-side. Set up dashboards visualizing key metrics and data points versus major competitors. Organize pricing data in multiple ways:
– By product/service – Compare list prices and discounts for identical offerings.
– By customer segment – See variation in pricing for different customer profiles.
– By purchase volume – Analyze discounts for different order quantities.
– By geography – View pricing differences across regions or location.
– By time/season – Track changes in pricing over time and seasons.
– By channel – Compare pricing across direct, retail, distributors, and other sales channels.
– By bundle – Analyze bundled offerings and product suites.
The different cuts reveal insights you may otherwise miss. You want pricing data structured for easy like-for-like comparison.
4. Understand competitor pricing strategy
Just comparing prices is not enough – you need to understand the strategic thinking behind competitor pricing:
– What are their pricing objectives? Do they aim for maximum per-unit profit, target market share growth, or focus on penetrating new segments? This provides rationale for overall pricing levels.
– Who are their target customer groups? Do they focus on high-volume low-price segments or go after premium positioning? This explains variations in pricing.
– How do they differentiate? Is pricing part of their differentiation strategy versus your brand? This context helps interpret their pricing decisions.
– What are their variable costs? Knowing competitor cost structures provide perspective on pricing flexibility.
– What value do they deliver? How does competitor pricing align with their product quality, features, services, and brand reputation?
Analyzing the above dimensions provides a 360-degree view into the strategic goals that shape how competitors price products.
5. Factor in non-price competition
Beyond just price tags, also compare the overall customer value proposition against competitors:
– Product features and quality – What product configurations, options, and grade levels are available? How does reported quality compare?
– Service and support – What kind of post-purchase services, support, training, and repair does competitor offer?
– Convenience and ease of purchase – How easy and frictionless is the competitor’s purchasing process and customer experience?
– Brand reputation and loyalty – How committed are customers to the competitor’s brand? What is their reputation and social proof?
– Incentives and promotions – What additional incentives like free shipping/returns, loyalty programs, or product bundles do competitors provide?
Customers may pick competitors despite higher prices if they deliver superior value in other ways. Include these factors when benchmarking your market positioning.
6. Conduct win/loss analysis against top competitors
Directly survey customers you lost to key competitors and identify when, why, and how you lost those deals. Ask clearly:
– How did the competitor’s pricing compare to yours? Was it lower, higher, or matched?
– Was price the deciding or influencing factor? Or were other factors at play?
– What specifically about the competitor’s pricing was more attractive? Discounts, bundles, financing etc.?
– Would you have paid more to purchase from our company despite competitor pricing? How much?
– What could we have done with pricing to potentially win you as a customer?
Win/loss interviews provide ground truth on how your pricing stacks up against competitors during actual sales cycles. The insights help shape your competitive pricing strategy.
7. Regularly track changes and patterns
Monitoring competitor pricing is not a one-time exercise – you need to track it continuously as a key performance indicator.
– Set up automated alerts when competitors change prices or offer new promotions.
– Plot pricing trends over time to identify seasonal patterns, cycles, and anomalies.
– Update your master database weekly or monthly to keep pricing data current.
– Develop hypotheses around upcoming pricing changes – e.g. new product launch, shift in positioning, response to your pricing.
– Have analysts provide commentary around major updates and recommendations on pricing strategy adjustments.
Ongoing tracking provides advance warning of competitor pricing shifts and identifies opportunities to adapt your strategy.
Conclusion
In summary, deeply analyzing competitor pricing should be an integral part of your overall pricing strategy. Go beyond surface-level comparison to understand the strategic motivations behind competitor pricing. Conduct rigorous data collection from multiple sources, organize for like-for-like comparison, track changes over time, and leverage data to model your own pricing response. With the right frameworks and technology, you can continuously monitor the competitive landscape and adjust pricing to maximize your advantage. Competitor pricing analysis done thoroughly provides tremendous insight to navigate strategic decisions and come out ahead.