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What To Know About The Impact Of Competition On Pricing Strategy

May 13, 2008
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.

Many criteria contribute to price. These include distribution methods, customer service, business reputation, price range, product features and target market.

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.

In order to demonstrate these three ways of judging the impact of competition on pricing strategy, I'll use one of my products.

Impact Of Competition On Pricing Strategy: Determine The Price Range Of Competing Products

The first impact of competition on pricing strategy is the price range for similar products.

Research on competitive products will tell you the low and high prices, and the range between them.

For instance, I did some research on Amazon.com and discovered that the competition for my market segmentation book ranges from $6.95 to $159, with a median of $82.98. So I know to price my book somewhere in this price range.

Knowing the price range is just the first step in deciding on your price, you also need to consider its features and target market.

Impact Of Competition On Pricing Strategy - Determine The Features Offered By Competing Products

You need to know how features influence the prices of competitive products.

Now your research should go beyond core features. Customers expect all products to have core features. To get more than the minimum price, your product should provide at least one feature that makes it different from all competitive products.

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

The third major consideration regarding the impact of competition on pricing strategy is the target market. The product's intended users determine the price for a product because some target markets will pay more than others. And you can always sell a product at a higher price if its designed for target market.

If you choose a target market not served by your competitors. and design your product to meet your target market's needs, you can charge more.

For example, most market segmentation books are written for one of three target markets: marketing students, marketing professionals, and executives of large businesses.

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: Synthesis

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.
About the Author
Discover more about pricing strategy at The Effect of Competition on Pricing Strategy. And get my DVD Marketing Your Small Business for just shipping.
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