The Flaw in Pricing your Business Based on the Competition

pricing profits Sep 18, 2023

Many businesses make the mistake of pricing their products and services solely based on what their competitors are doing. You google your service, set the area to your region, find the average and put that up on your website.  Maybe a little less to grab the "price shopper's" business.


However, this approach overlooks a critical factor – profitability. Just because your competitors charge a certain price doesn't mean they are making a profit or that their pricing strategy is sustainable. I'm going to go out on the limb based on what we know about how many small businesses succeed and venture to say, their not profitable.  This race to the bottom is the wrong strategy.  Every.  Single.  Time. 

In this blog post, we'll explore the flaws in this pricing strategy and discuss better alternatives for determining the right price for your business.

1. Your Competitors May Not be Profitable

One of the biggest problems with pricing based on the competition is that you don't know if your competitors are profitable. They may be selling at a lower price than you, but it doesn't mean they're making a profit. In fact, they could be losing money on every sale. As a result, you may end up targeting the wrong market and pricing your offerings too low to compete with your competitors. This can ultimately lead to a decline in your profits.


2. You're Not taking into Account Your Unique Value Proposition

Another reason why you should avoid pricing based on the competition is that you're not considering your unique value proposition. Every business has something unique to offer, whether it's superior quality, excellent customer service, a better user experience, or even a more innovative product. If you're only focusing on your competitors and trying to match their prices, you're losing out on the opportunity to differentiate yourself and charge more for the value you provide.  Speaking of differentiation, make sure your product can't be directly compared.  Put your UNIQUE spin and value-add in the mix to eliminate price comparison.


3. You May be Attracting the Wrong Customers

By pricing based on the competition, you may end up attracting the wrong customers. For instance, if you're charging the same price as your competitors, but you're offering a higher quality product or service, you're likely to attract customers who are only looking for the cheapest option. These customers are not your target market, and they may not appreciate or value the uniqueness of your offering. Have you ever found that the customers who pay the least are the most work?   Everyone finds that.  It's a mismatch in value, not price paid.  People vote with their dollars and those who aren't willing to give you many of theirs haven't bought into your value.  Period. 

Instead, you should focus on targeting customers who are willing to pay more for quality.  And with low profits you can't deliver the quality these valuable customers deserve.


4. It's not a sustainable strategy

Pricing based solely on the competition is not a long-term sustainable business strategy. Besides, who wants to live with the constant stress of keeping up with their rivals' adjustments? Instead, it's more fruitful to establish a solid pricing model based on your business. Knowing the total production costs, labor costs, and other overhead expenses should play important role in determining your prices. Then consider your target audience, and how much they are willing to pay. 


5. Trust your value

Last but not least, trust your value. Your pricing should reflect the value that your offering brings to the market, regardless of your competitors. A pricing strategy that’s based on what you provide and not what others do creates more flexibility, and will keep you from falling behind. Value-based pricing considers what the market is willing to pay for the benefits that your business provides. Pricing based on this reflection recognizes that you should not be viewed as just another business and that you have unique perspectives that are worth paying for.


Every business is different, and your pricing strategy should be based on your own unique situation. Remember that nobody knows your business better than you do, and examining all aspects, including production costs, target audience, and profit margins, can help you establish the optimal price point for your offerings. JEA can help you dig into all of these metrics to maximize your profitability and understand the best pricing model for long term success.  Trust your worth and stand out from your competitors. Ultimately, your bottom line will thank you for it.

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