Competitive Pricing Intelligence

Is gathering your competitors’ pricing information a worthwhile endeavor?

Conventional wisdom is that you need to know your competitors’ pricing.  My question is “Why?”

The answer I get most often from business owners/leaders is that their company’s pricing has to be competitive.  Then I ask “So what is a competitive price?  Is it 10% more, 10% less, in line with your competitors?  What does it mean to you to be competitive?”  Interestingly, few have a concise answer.  They simply feel that their price needs to be close to what their competitors are charging.

Lack of a clear definition of ‘competitive price’ isn’t the only problem.  There are a number of flaws in the ‘conventional’ wisdom regarding the value of pricing intelligence.

First, it overlooks the fact that we tend be more critical of our offerings than our competitors’ offerings.  We know where the warts are in our offerings.  They’re less visible when viewing competitors’ offerings.  It’s difficult to get fair compensation for the value you provide when you’re consistently discounting that value.

Second, most of your competitors’ don’t have any better idea of how to quantify value (dollars/cents) than you do which means that they, too, have defaulted to ‘industry pricing.’  How is gathering pricing ‘intelligence’ from people who don’t know any more than you do going to help you establish your prices?

Third, if you have an effective business strategy – one in which you’re providing something the market wants or needs that it isn’t getting – how is your competitors’ pricing relevant?  There is no frame of reference among your competitors.  You’ve got that market entirely to yourself.

Fourth, gathering competitive pricing intelligence focuses the seller’s, and ultimately the buyer’s, attention on price instead of value.  It’s value that the vast majority (over 85%) of buyers want, not the lowest price.  The reason why they seem so price conscious is that’s where we’ve focused their attention.

Finally, most businesses have taken on business that they shouldn’t have.  Whether it’s because they needed the cash or they thought something was a good idea but it didn’t pan out, they’ve taken on business that they shouldn’t have.  To get, and retain, that business they’ve discounted their prices.  By using their pricing as a frame of reference you’re paying for their mistakes with your pricing.  Ouch!

Getting back to the original question – “Is gathering your competitors’ pricing information a worthwhile endeavor?”  I have to say ‘No!’  Indeed, I encourage my clients NOT to look at their competitor’s pricing.  It helps them avoid the pitfalls outlined above.  Hopefully these insights will help you as well.

Whether you’re a private equity firm looking for ways to quickly generate higher returns and more investors…

…or a middle market company struggling to get funding for expansion, give Dale a call at 314-707-3771 to discover just how quickly he can help you achieve your goal.

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6 thoughts on “Competitive Pricing Intelligence

  1. Mary L. Cole

    Dale, your points are well made and worthy of consideration. They’re a great way to start a conversation. As a counterpoint from a marketing focused person, let me suggest that walking into a dark room without a flashlight is never a great idea.

    Yes, you need a strong value statement and you need to price for profitability. Looking at your target market(s) you should be able to price the product to solve their problem(s) and do very well indeed. That is one way to develop your pricing.

    You still need to do sales training. Do you want your sales reps blindsided when they hear from prospects that a product which solves some/part/most of their problem is available for one third the price? Naaaah. Good sales and marketing cooperation means that the sales channels understand not only the problem(s) to be solved, but the market’s options to solve them, the specific competitors, the strengths and weaknesses of each, and their pricing models. Sales reps are your feet on the street and they will provide you with pricing information; they will certainly keep you updated on it as time goes by.

    It is more dangerous to a company to price low than to price high. Pricing high creates a mindset of value which presumably your sales channels understand and media collateral support. You’ve boxed yourself into a corner with a low price. You can always discount for whatever reason, but you can’t tell a customer “For you, 10% more!”

    Long story short: your competitors pricing is relevant to your distribution channels, and you owe it to them to shine a light on information that will help them to move product.

  2. Barry Gleeson

    Interesting perspectives. I would have to agree that regardless of pricing strategies, my experience is that buyers are programmed to establish a “value” that includes some estimate of price, whether that estimate is from their own experience or from research within the marketplace. I don’t feel value can be established without a price. The psychology in the buyers mind is certainly influenced by price – too low, something must be wrong; too high, there must be more demonstrated value. And, I agree with Mary that sales people need to be well prepared for the conversation. Ideally, sales people will create the value early in the engagement such that price becomes less important.

  3. Jeffrey Summers

    Great post Dale – I agree 100%. Part of the downside of being a thought-leader is the volume of ‘status quo’ thinking you get bombarded with.

    The problem with previous commentators thinking is that it’s based in commodity thinking. You don’t offer products and services based on need or problems – you offer products and services to add value.

    The biggest reason you shouldn’t care about competitor’s pricing is that they don’t have the same cost structures you do and don’t offer the same value in their experience (let’s hope so anyway).

    And the idea that sales people create value is just dumb. If the value in your products and services isn’t easily identifiable by the consumer it begs the question as to whether enough value exists at all since it’s the consumer who defines the value in the first place.

    Keep up the good fight!

  4. Dale Furtwengler

    Mary,

    I love your dark room analogy and would like to continue it. Let’s assume that I’m a CEO and I have my marketing VP and sales VP with me. I’m holding the flashlight as the three of us enter the dark room. Where I shine the light will determine where I focus my team’s attention. If I shine the light on price my marketing VP’s messages are more likely to contain language like ‘at an affordable price’ or ‘at a competitive price’ which, in turn, focuses my customers’ and prospects’ attention on price. Similarly, my sales VP will spend a great deal of time teaching his sales force how to deal with the price issue.

    If, instead, I focus the light on value, the marketing messages will sing the praises of the value we provide without any mention of price. The sales VP will devote his energies teaching the sales force how to quantify and communicate our value in ways that allow customers and prospects to see the ROI they’ll get from our offerings. If prospects aren’t’ interested in that ROI, then they’re price buyers and we really don’t want them as customers anyway.

    Let’s move out of the world of speculation and turn to some real life examples. Geoff Vautier, an international speaker and expert in the 80/20 principle, wrote a review of my book, Pricing for Profit, on Amazon. He said “Within the last month I used specific ideas in Dale’s book to convince a colleague to put up his fees by a factor of 10!!! …He just banked a cheque for $27,000 compared to the $2,700 he would normally have charged the client…I also tripled my fee and that placed me, as a first time speaker in the USA, in the top 2% of all speakers fee wise.”

    We can tell from his review that Geoff knows what his competitors are charging. The question is “Did his ability to get these results for his colleague and himself come from this pricing knowledge or from his ability to quantify and communicate value?” Personally, I can’t see how knowledge of their competitors’ pricing would have helped either of them command multiples of what they were getting previously. I’m sticking with original message.

    Mary, I do appreciate your challenge to my thinking. It’s through challenges like yours that I learn even more about how to communicate my value pricing strategies. To date, yours has been one of the beneficial challenges I’ve faced. Thank you for taking the time to share your ideas and further my education. All the best!

  5. Dale Furtwengler

    Barry,

    I couldn’t agree more that buyers often have ‘a price’ in mind and that they’re often influenced by what they see in our competitors’ pricing. It’s our job to demonstrate value beyond what our competitors are providing to substantiate our higher prices. Buyers are willing to pay for additional value, but they like most of our competitors, aren’t equipped to quantify (convert to dollars/cents) the value they’ll receive. That’s our job as marketers and salespeople.

    In terms of preparing salespeople to deal with the price issue, the solution seems fairly simple to me. The question the salespeople need to ask is “What are you giving up to get that lower price?” As you said “the buyers mind is certainly influenced by price – too low, something must be wrong; too high, there must be more demonstrated value.” What better reason to remain focused on value?

    Thanks for sharing your thoughts with us, Barry. Each of us learns from every perspective offered. Be well, my friend.

  6. Dale Furtwengler

    Jeffrey,

    You and I think so much alike that it would be easy to assume that we were subjected to a Vulcan mind meld at some point.

    I always appreciate your insights, Jeffrey, because I know the success you and your clients have enjoyed using the concepts we both employ.

    Thank you for taking the time to share your wisdom with our readers. All the best, my friend.

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