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Three Ways to Judge The Impact Of Competition On Pricing Strategy |
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Written by Linda P. Morton
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Tuesday, 13 May 2008 |
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Judging the impact of competition on pricing strategy requires that you learn about your competitors' products and how they are similar and different from your product.
by LindaP.Morton
Judging the impact of competition on pricing strategy requires that you learn about your competitors' products and how they are similar and different from your product.
A lot more goes into determining a product's price than just the product. The manner and speed of delivery, the way that customers are served, and the product guarantee contribute to the price that customers are willing to pay for your product.
It would take more than reasonable article length to cover all of these. So instead this article will cover only price range, product features and target market.
To illustrate what I mean, I'll compare one of my products to competitive products.
Impact Of Competition On Pricing Strategy: Know the Range Of Prices That Your Competitors Charge For Their Products
The first impact of competition on pricing strategy is the price range for similar products.
Knowing the price range of competitors' products will help you to determine what you should charge for yours.
For example, I have a book on market segmentation. If you search on Amazon.com for market segmentation, you'll find many books listed from $6.95 to $159. So my book should be priced somewhere within this broad price range. The median price in this range is $82.98.
You need to discover the price range of your competitor's products as you determine your price. Whether your price should fall on the low or high side of the price range for competitive products depends upon your product's features compared to your competitors'. It's also influenced by your target market.
Impact Of Competition On Pricing Strategy: Know the Features That Your Competitors Provide With Their Products
The second thing you need to learn about the impact of competition on pricing strategy is that price varies by features.
It's not enough to just provide the features that all similar products provide. To stand out in your customers' minds and to get a good price, your product should provide something more.
To illustrate, let's say that my book just covered basic information that's included in every other market segmentation book. Would you want to buy it?
Most market segmentation books rely on statistical analysis. Some are very complicated, and most are too much so for the average reader. So my book uses a simple process that requires no statistics and can be used by almost anyone. That distinguishes it from competing products.
Impact Of Competition On Pricing Strategy: Know The Market That Your Competitors Are Targeting And Target A Different One
Another element in the impact of competition on pricing strategy is the target market. If you create your product for a particular group of people, you can charge more than if you create it for everybody. And if that is an exclusive group, you can charge even more. For instance the highest priced market segmentation books are written for marketing agencies. They can afford to pay top dollar for information that they can mark up to their clients.
Just because you have a product that is similar to competitors' doesn't mean that you sell your product to the same type of people.
For instance, the target market for most market segmentation books are either student or professional marketers, managers of large businesses, or businesses in a large industries.
I've not found one that is designed for small business owners. And most are just so complicated that, even if a small business owner bought these competitive books, they wouldn't finish reading them.
Impact Of Competition On Pricing Strategy: Conclusion
Once you know the price range of competing products, the extra features offered by each, and the target market for each, you will have a much better idea of how to price your product.
To illustrate how to use this information, I priced my market segmentation for the specific target market so I didn't go to the high end of the price range. After all, small business owners have limited resources. Still I didn't go to the lowest of the range because my book provides features not available with competing products. Although I know that my book has quality, I decided to price it barely half of the median price. First I wanted to price it right for my target market, and second, it's presently sold only as an e-book.
If you use the information in this article, you can also set a good price for your product by noting the impact of competition on pricing strategy.
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