Hi All Again. Following my last article answering the above great question… here is the second article on pricing in the series of three. Hopefully at the end of these articles you will have all the possible pricing strategies

So the second pricing strategy is Competitor Analysis Pricing. Competitor Analysis is a tool often used in strategy development particularly with the Strength & Weaknesses dimensions of the SWOT analysis tool. Strengths and Weaknesses are internal business considerations targeted at your internal company. To qualify to be a “Strength” it must be something that you are better than your competition at… For example Ryanair are known to have a much lower cost base than much of their competition and is therefore a definite Strength.  For something to be a weakness again it should be measured against the competition… Right now Willie Walsh the CEO of British Airways probably regards the unionised culture within BA as a weakness when comparing BA to Ryanair. I hope this explains the S&W parts of SWOT. So what has this to do with pricing?

Well often some companies do “Competitor Analysis Pricing” by looking simply at what their competition charge for something and then just matching or indeed beating it. Have you done this? … I have in the past … and what a fatal mistake when done on its own.  Why is it a fatal mistake on its own? Well it takes no account of measuring your actual costs which could result in you selling below cost … Even worse what if your costs were higher than your competitors and you pitched your prices lower? What then … Well you could start a price war against a competitor who can beat you in this price war will eventually put you out of business.

Another strategy often employed is “Asking the customer what they are willing to pay?” Again accepting these prices without knowing your costs or indeed your competitors pricing can cause you to do work at a loss or again significantly undercut a competitor and start an unnecessary price war. I am not saying not to ask the customer what they are willing to pay as this can be a great way to identify their available budget but make sure if you ask them this that you know what you can offer them for this price and still make a profit.

The above of blindly just doing something reminds me of something my Mother used to say when I used to use my Brother as an excuse to justify doing something wrong … My Mother used to say “If my brother jumped off a cliff would I jump off after him” … Guess she didn’t know I was a superhero who could fly … eh!

Next week we will discuss Value – added pricing in the last of these pricing articles.

Bye for now

PV Photoman