Following a competitor’s lead blindly, is the equivalent of abandoning your flight plan and taking off into a blizzard. The results can be devastating.
What does aviation have to do with your pricing strategy?
Imagine you are a seasoned pilot. You have filed your flight plan, then a massive snowstorm hits. Visibility is zero and winds are gusting up to 30 knots. Are you going to take off? Not unless you have a death wish, right? You know the dangers of flying blind.
Yet business owners fly blind time and time again. How? Imagine your competitor comes out with an improvement to its offering. You worry the enhancement is going to give them competitive advantage so you scramble to effect a similar improvement. You just took off in a blinding snowstorm.
First, you do not know whether their customers or yours, will value this enhancement. Unless your competitor is raising its prices to reflect the additional value and their customers are paying that price, you don’t know whether the enhancement has any perceived value to the customer.
Second, many business owners give away these enhancements without ever asking for higher prices. Their rationale is they will gain ‘competitive advantage’ and garner a ‘larger share of the market.’
Think back to a time when you employed this strategy. Did you gain market share? I’m not a betting man, but I would willingly bet you did not gain any additional market share. There are simply too many factors that buyers consider beyond price in making their buying decisions.
Let us assume your competitor created an enhancement and decided not to raise prices in hopes of gaining market share, which did not happen. Your competitor drove up its cost structure without gaining any additional revenue. All the costs associated with developing and marketing the enhancement was wasted. That means its operating margins just dropped.
Worse yet, you just followed them blindly. You also incurred additional costs without the benefit of additional revenues. To compound the problem, you do not have any better idea than they do about whether or not your customers value your improvement because you did not ask them to pay for it. Ouch!
It is counter-intuitive, but following a competitor’s lead in enhancing their offerings without evaluating their approach and the impact it will have on their bottom line, is the equivalent of abandoning your flight plan and taking off into a blizzard. The results can be devastating.
Dale Furtwengler is the author of the internationally acclaimed book, Pricing for Profit. His company, Furtwengler & Associates, Inc., helps companies get higher prices regardless of what their competitors or the economy are doing. For more pricing/branding/marketing/sales tips visit his website, PricingForProfitBook.com