Do My Competitors Matter?
This article was authored by Dr. Michael Tatonetti, CAE, CPP, of www.pricingforassociations.com.
“When it comes to pricing and value propositions for our association’s products, do our competitors matter?”
That's the question that we're going to tackle in this article.
For most associations, their number one pricing strategy is to analyze their competition and make decisions based on their resulting assumptions.
More specifically, associations do not always have a pricing strategy that is internally driven. Rather they look at their closest competitors and the products that they offer, determine how they are pricing and positioning those similar products, and then compete on that price by positioning theirs as either:
- Similar value with a similar price
- Lower value with a lower price
- Higher value with a higher price
- Similar or higher value with a lower price to drive market share
This is not a proper pricing strategy.
I do understand that this is an easy way to price your products, but there's many reasons that this does not work:
- First, when you are pricing based on what your competition is doing, you do not have a full understanding of their products or their own strategy. Why did they make the pricing decision that they made? Does this even relate well to what you're doing? The reality is that you do not sit in their Board meetings, you're not on their leadership team, you're not a member of their organization, you have not gone through the product or service yourself. How can you properly gauge what the value is and what the pricing strategy should be within a broader product landscape in comparison to your own products and strategy? You’ll be left making a lot of assumptions, and we all know what making assumptions will do.
- Second, how do you know that they even have a pricing strategy themselves? Unless you work for the company, you do not know what their costs are, if this product is a loss leader to gain money in other areas, or if they’re simply copying you right back. Talk about a raise to the bottom! When you copy your competitors, you're assuming that they have a great pricing strategy, that they've done their own market research, that they've done the heavy lifting for you as a competitor, and that you can just borrow what is public-facing, or at least interpret what is public-facing. But what if your costs are higher than theirs? What if you have healthier margins? What if their goal right now is market acquisition, but you already have a healthy market share and your goal right now is to grow loyalty and profit? What if they're offering something for a lower cost or for free to upsell people into another offer, but for you that similar offer is the offer that needs to be more profitable? What if they're overpriced and barely making any sales - and you are none the wiser?
By now you should get it. Never price based on your competition.
Given what we’ve shared, do your competitor’s prices and value propositions matter?
Yes, but I like to correlate your competitor’s prices and value with receiving relationship advice:
Everybody has an opinion. Everybody thinks that they're right. But what might work for them does not automatically mean that it will work for you or your specific circumstances.
You should take everything you see your competitors doing with a grain of salt.
Do not assume that it is to be 100% replicated.
So how do I recommend looking at your competitors prices and values?
I recommend that you review them -- see what they're doing, see if it inspires ideas -- but you should have your own concrete, internal pricing and value strategy that you can then filter those ideas through to ask:
- “Is this something that we can offer?”
- “Is this a direction that we should even be going in?”
- “How does this fit into our own strategy?”
- “How might this look for us?”
If you simply copy what other people are doing, you will be in a race to wherever the wind blows.