Should you match competitor prices?

Navigating competitive price pressure is a recurring challenge for businesses, and the knee-jerk reaction of matching competitors can have detrimental effects on profitability and market position. In this article, we'll explore effective strategies for responding to competitive price pressure, emphasizing the importance of informed decision-making and regular pricing evaluations.

The Pitfalls of Reactive Decision-Making

Competitive price pressure often triggers reactive decision-making, driven by fear or a desire to match competitors quickly. This approach is not only a bad habit but also poses a significant financial risk and threatens market share. It's crucial to break free from this cycle and adopt a more strategic mindset.

Questionable Impulses

Reacting to competitive moves with immediate price adjustments is a questionable impulse. This reactionary approach can lead to a loss of financial control and a compromised market position.

Financial Impact and Threats to Market Share

Matching competitive prices without thoughtful consideration has an immediate financial impact, lowering the average contract value and potentially jeopardizing long-term market share. It's essential to recognize the implications of these decisions beyond the immediate response.

Strategic Responses to Competitive Pressure

To effectively address competitive price pressure, businesses need to adopt strategic responses that go beyond mere price matching. Here are key considerations to keep in mind:

1. Regular Evaluation of List Prices

The foundation of a proactive pricing strategy lies in regularly evaluating list prices for all products. Many instances of competitive pressure arise because initial prices were set without subsequent evaluations. Continuous scrutiny ensures your pricing model aligns with market trends and competitor offerings.

2. Data-Driven Pricing Model

Establishing a routine for continuous evaluation is crucial. Whether handled internally or externally, someone should regularly assess your pricing model's fair market value and perceived value in a competitive context. This data-driven approach helps in making informed decisions about adjusting your pricing model.

3. Thought Experiment: Customer's Next Best Alternative

Consider your pricing model through the eyes of your prospects. Running a thought experiment where you analyze your customer's next best alternative helps in understanding the full spectrum of options available to them. This ensures that your product and pricing consider the broader competitive landscape.

4. Quarterly Pricing Evaluations

A minimum of quarterly pricing evaluations is recommended, with the worst-case scenario being twice a year. Regular assessments prevent your pricing model from becoming outdated and insecure, providing a foundation for confident decision-making.

5. Forming a Pricing Committee

Aligning sales and finance perspectives is crucial for sound decisions around competitors. Establishing a pricing committee, comprising cross-functional team members from sales, finance, marketing, and the executive team, fosters regular conversations about pricing strategy. This ensures decisions are made with a holistic understanding of stakeholder needs.

6. Balancing Growth and Profitability

Sales and finance often have conflicting priorities when it comes to responding to competitors. A pricing committee facilitates ongoing discussions and evaluations of trade-offs between growth and profitability. It brings together diverse perspectives to form decisions that benefit the entire company.

Cultivating a Confident Attitude Towards Competitors

In the face of competitive pressure, businesses should cultivate an attitude grounded in confidence and strategic decision-making. Understanding the value your product provides and making informed responses to competitive changes are essential components of this mindset.

Informed Decision-Making

Know the value your product brings to the market and make decisions based on a clear understanding of your worth. Informed decision-making involves regularly assessing your pricing model and responding strategically to changes in the competitive landscape.

Continuous Improvement

Commit to continuous improvement in your approach to competitive pressures. By staying proactive and regularly evaluating your pricing strategy, you position your business to make sound decisions that balance growth and profitability.

Conclusion: A Strategic Path Forward

Responding to competitive price pressure requires a departure from reactionary practices. Instead, businesses should adopt a strategic approach that involves regular pricing evaluations, thoughtful consideration of customer alternatives, and the formation of a pricing committee.

By fostering a confident attitude towards competitors and maintaining a commitment to continuous improvement, businesses can navigate competitive challenges with resilience. The key is not just to react but to respond strategically, ensuring long-term profitability and a strong market position.

Happy pricing!

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