The Foundation of Pricing Analysis: Competitive Pricing Analysis

Contrary to popular belief, googling your rivals after you have launched a new SaaS item is not the best way to get an idea of your surroundings, especially when it comes to your long-term promotional pricing strategy. Instead, a competitive pricing analysis would be more beneficial. Keep reading to find out why.

Competitive Pricing

This method of pricing revolves around pricing either your item or service analogous to your rivals. Through it, you can understand the best way to charge your shoppers in proportion to the Total Cost of Ownership, which are the costs that go hand in hand with going through with an answer. In addition, those costs can be anything from explicit ones, implicit ones, or a combination of the two. Explicit costs can be anything from dollars to taxes while implicit costs include things like labor or the time spent to understand a new item. Indeed, your possible shoppers never stop comparing prices nor do they stop evaluating the Total Cost of Ownership when taking into consideration your rivals.

In addition, you also have to take into consideration both your direct and your indirect competition. Your direct ones are those items or services that are trying to operate in your market. At the same time, shoppers look at the two of you as the same thing. Indirect ones, on the other hand, offer items or services that may act as the same solution, but do so in another way. By pinpointing either your industry or the issue that you have a solution for, you can have a better understanding between those two different types of rivals.

That being said, indirect competition can act as a direct competitor at times. Indeed, oftentimes, they are more important than they initially seem and can even become some of your biggest rivals. Take, for instance, marketing automation software. HubSpot, Pardot, and Marketo are all direct rivals that offer a variety of marketing automation features including CRM, email management, website analytics, and content marketing, to name a few. In addition, they also have a number of indirect rivals as well. All of their features most likely have several tools that could act as alternatives which, if combined, could act as an alternative for a marketing automation software.

Now, when it comes to figuring out the Total Cost of Ownership for both types of competition, you don’t want to compare the pricing of direct competitors to the total prices of a collection of indirect ones as it won’t correctly display it. For instance, many may first assume that potential buyers would rather get a full stack instead of paying four to eight-fold for a complete stack. However, in reality, setting up the personalized stack takes up a lot of time. Indeed, they will have to spend a lot of time figuring out use that new software, configuring the settings, speaking with support, as well as switching from one tool to the other, to name a few. As a result, in reality, the price associated with the complete solution seems more justified.

Importance of Scalable Pricing

Dynamic pricing is now becoming more normalized, especially in B2B. After all, there’s a big chance that your rivals already have scalable pricing, meaning, their shoppers pay analogous to the value that they get. Therefore, when you analyze their pricing as well as collections of indirect competition, you want to make sure that you take into consideration the way their pricing scales and the effectiveness of it. To see the least amount of churn, you want to make sure that your pricing scales close to your customer’s value.

As you can see, competitive pricing analysis makes a great tool for solving various issues. You want to either take a look at your competitors, especially your indirect ones and make an analysis, or you look into your industry. The latter requires you to look at the price of the items potential buyers are currently buying so that you can figure out both their willingness to pay along with your business margins.

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