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How To Determine The Impact Of Competition On Pricing Strategy

May 13, 2008
You need to know the impact of competition on pricing strategy i to price your product competitively. This requires comparing and contrasting your products to your competitors'.

Your customer service, type and speed of distribution, your guarantee, and your business reputation can all contribute to what your potential customers are wiling 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 make these points easier to comprehend, I'll discuss one of my products as an example.

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 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 impact of competition on pricing strategy relates to 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: Learn The Target Market Of Competitive Products and Go After A Different One

The third impact of competition on pricing strategy requires knowing whom the products are marketed to. Some people are just willing to pay more for a product than other people. And all people are willing to pay more for a product especially for them.

Although your product may be similar to competitive products, you can charge more if you design it for a specific target market.

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: Synthesis

By knowing the range of prices for competing products, the unique features of each, and target markets, you'll be much better prepared 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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