Competitive Pricing

Competitive pricing is one approach to solid small business pricing strategies.

Whatever you're bringing to the marketplace, your target customers will compare you to your competition. (It makes me laugh when people claim that their business idea is so special, they have no competition. Ask their customers, however, and you’ll get quite a different story.)

While there may not be a company exactly like yours (i.e., no direct competition), you are competing for your clients' dollars, wherever they're going (indirect competition). To do a thorough job of great pricing, you need to understand both groups – direct AND indirect.

For instance, if you're in the movie business, it's obvious that other movies compete with you directly. But in the general category of leisure, you're also competing with bowling alleys, video arcades and hobbies indirectly.

Pricing Begins With Your Competitor

You have to know your competition's positioning and pricing strategy too. Fortunately getting this information is scarily easy online... it takes patience and diligence, but you can do it right in your own living room. (In my day we had to schlep to the library!).

Of course, you have to remember that whatever you're doing to find out about your competitors, they will also be doing to find out about you. As they see you coming, they may suddenly change their strategy to "head you off at the pass." Make sure you remain limber enough to make quick changes as needed.

Do You Go High or Low?

Setting a competitive pricing strategy is sort of like walking a balance beam. You need to figure out how to be competitive, that is not too high or too low...

So, you'll need to examine... How are similar products or services priced? Sometimes it's better to start on the low side, to generate initial interest in your offering.

That pricing strategy can help you to penetrate the market quickly and solidly, so you sell as many as you can as quickly as you can so you can get as many customers as possible early in the game.

It feels great to be in demand, but if you appear too cheap, your audience might not respect your service – or worse, the customers you attract might be too low-end to purchase enough volume for you to survive.

So, another competitive pricing strategy might be to set a higher price, with the expectation that higher price equals higher value. But that can backfire too, if you're not able to convince your target market that your price is worth it.

In short, competitive pricing takes some careful decision making, based on a thorough exploration of your competitors and the marketplace.

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