A common method that is used to determine the price of a product/service, is the competitor-based pricing model.  This is a relatively straightforward process, in which basic research of the competition is required in order to define the price range, and is also considered a low-risk strategy, as the chances of going wrong are slim.  So, everything is easy and the possibility of making a mistake is low, but is there a catch?

The main issue is that by following this pricing strategy, most of the times, the price that we set for our products/services are either the same level or below that of the competition.  And this might be sustainable for a while, especially during the initial stages of market entry or to acquire short-term goals, but as time passes, we need to base our pricing around our product/service and not on what someone else has to offer.

If our business model is not built around lowest price, but we choose to compete this way, then most probably we are destroying our profitability and therefore our capacity to deliver to our customers.  What we are actually doing is trying to beat the competition by playing their game, instead of trying to beat them by playing our game.  Sometimes, is in our best interests to walk away from such a situation, because, after all, you never lose a fight that you don’t engage in. 

Apart from the competitor-based model, in general, below par pricing practices, such as “one-size-fits-all”, can certainly hurt a company’s economic results.  And as a recent global survey from Bain & Company, involving executives from 1700 B2B companies has shown, 85% of the respondents stated that their pricing decisions could improve. 

Based on the same survey, top performers adopt tailored pricing at the individual customer and product level, and they also invest in the continuous development of the skills and capabilities of their pricing teams through training and software tools.  Moreover, sales incentive plans are designed in rewarding reps that push deals up from the minimum allowed price.

From the above, it is quite clear that competitor-based pricing should be handled with care and that is better to choose where to compete, rather than be dragged into price wars.  On top of that, as organisations we need to be crafting our price strategy based on our strengths and also to invest time and resources to make sure that this strategy is executed and monitored, so as to bring the desired outcomes.