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Competitive Analysis Blog 3: The role of pricing

In our ongoing discussion on competitive analysis, we consider the role of pricing and how it is managed within the context of brand building.
Test The Waters
Your natural starting point will be to base your pricing strategy around what you’ve developed within your home market.  In simplistic terms, if you’ve positioned yourself as either a value-for-money, mid-range or premium brand, the pricing models you operate will reflect this.  These can still be used as a benchmark for your expansion, but ideally need to be tested in advance of your entry.

Money: Colours in B&W

Intelligence gathered at trade shows or through discussion with potential channel partners can help enormously here.  Pricing is regarded as a hugely sensitive issue, but you need to confirm whether you are pitched in the right ball park within your market segment(s).  It may be difficult to compare on a like-for-like basis, depending on how your competitors package services and products.  Worth noting:  lower priced products do not necessarily reflect inferior quality; expensive products do not necessarily guarantee premium quality and service.
The Customer is King….
Local culture can have a greater than desired impact on your pricing programme.  I have referred previously to the concept of quality versus premium.  Crucially, whilst quality may be a high priority amongst key decision makers, they may not be prepared to pay for it, or at least not at the level you may be anticipating.  Incumbent suppliers may be able to match your offering at a lower price, through economy of scale.

Money: Will Freeborn

…Therefore Segmentation is Vital
Typically, when targeting prospects, your segmentation may go no further than SMEs versus Corporates. This is no longer sufficient.  You need to start identifying sales by vertical sector, and within these target clusters of like-minded customers.  Examples are:
•    Banking: International banks with overseas branches may adopt a homogenous approach to technology, as they can reassure all their customers of the value they place on security of data. They may seek premium products.  Local banks may opt for a more value-for-money service.
•    Education: in emerging regions, more universities are adopting an American approach to attracting students, by offering “best-in-breed” technological facilities; similarly, their governments are investing heavily in technology within primary schools, although these budgets may be capped. In the UK, government is seeking to reduce expenditure, so software offering efficiency gains and cost savings will be favoured.
•    Real Estate: despite the pre-recession construction boom in the Middle East, not all countries have adopted legislation or regulation on Health & Safety. This may now be an emerging opportunity.
There are many more examples, but the principle guiding factor here is that your pricing programme may have to be reviewed if your portfolio is considered to be over-engineered for the local market.  You may not generate the margins you’d hoped.
Only by knowing your customer base can you appreciate their values, and adapt to offer products and services they actually need.  Identify when plain old vanilla will do versus when rich features are necessary.
Back to your competitors. Scrutinise their marketing literature. Decipher what they offer as part of their “solution”, “turn-key solution” or “diagnostics”.  Try to gather intelligence on their logistics and general reputation. All of these areas feed into the overall customer experience, and will colour  perceptions of your brand.  These factors all help sway the discussion away from pure discounting and more toward relationship building. Here you can control how you differentiate.

I am an International Strategy and Marketing Consultant with over 20 years experience in marketing and strategy and international operations both in the US and Europe. Broad functional experience in: Marketing and Communications Strategic and Financial analytics including Business Case Development Consulting and Operational management Client Relationship Management Deep financial services sector knowledge. Worked in organisations ranging from technology start-ups, fast-paced direct marketing agency to large corporates. Member of Enterprise Ireland Mentor Panel Member of IIA (Irish Internet Association) International Strategy Working Group Committee member of the MBA Association of Ireland:

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  • Fantastic post Una. I’m sure this will open the eyes of many business owners.
    It took us some good time understand our pricing structure (not because it’s complex but because it was time consuming putting all the service quality bricks in the right place) and also “quality Vs premium”.
    As you suggested, we figured it out as you suggested: analising our competitors but especially leading companies in the same field abroad. This was crucial for us. An good exercise that I recommend to every business owner…

  • Anonymous

    Don’t forget to get an understanding of your prospects budget as well.
    The best pricing model in the world won’ get you far unless they have a budget to match.

  • Hi Una. Excellent post as always. Competitor analysis plus review of our value proposition has given us our pricing model for when we launch.

  • Anonymous

    Many thanks to all for your contribution and retweets. Keep them coming. Add some of your own experiences.

  • Una, add this post to your others and you are now starting to develop a really comprehensive series. I’d love to hear your opinion but pricing is one area where I believe many businesses get it wrong? I can think on one example of a start up that priced its product way too cheaply at the start in an effort to gain some market share (Ireland) This strategy worked for a period of time but eventually came back to bite the company hard, as the lack the margin didn’t allow them to reinvest in the biz so as to support lots of new customers. The damage that was done to their reputation was unfixable in the short-term.

  • Anonymous

    Great post Patrick,
    Many of us business owners shy away from the cold hard facts and look at our business through rose tinted glasses. So the need to find an accountant that you connect with, trust and meet regularly is vital.

  • Well, I’m an accountant that is also running a business. Until about 7 years ago I was “just” an accountant but then I moved over to the dark side and am now doing sales as well. Culminating in also running I remember the easy way it was to be prudent but also now recognise the client’s view when given the hard facts. I completely agree that everything has to be calculated and shown so they know where they stand. Progression can start from there. I hope everyone does take heed and get a good accountant to help in their endevours as they are very worthwhile – I know from both ends of the equation.

  • Anonymous

    It can be tough to take a look at one’s accounts because there’s a fear that it will take the romance out of the business. It’s funny how we assume that the information will always be negative. There are times when our instincts are spot on and we get it right. However, you can’t run your business on instinct forever. At some point, you have to add in data to see if you’re in synch with your business vision and plan.

  • Hi Patrick, it’s my opinion that you cannot take a good small business decision unless you are tuned in financially. Ignoring the situation will merely lead bad decision making, Thanks for the reminder! Niall

  • you are singing my song patrick! well done

  • Great article about the financial side of business. Thanks!

  • Patrick

    Thanks guys for your positive comments for my tentative foray into blogging.

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