Should Competitors Dominate Your Pricing Analysis?

A client recently asked my advice on how his company’s deal desk should be including competitive intelligence to inform their pricing analysis.  His concern, given the intense competition his sales reps face in the field, their deal analysis should be based on what price is necessary to beat what the competitors are offering, even if that means pricing below their target levels.

On one level, I can understand his point.  After all, you can’t grow the company’s revenues if your prices are not competitive enough to win deals.  However, the question itself is fundamentally flawed, because it assumes a company has to begin in a reactionary position.  This is the crux of the problem companies face when they consider (if they consider) how to use pricing as a lever to grow revenues and hit their numbers.  Over the years, I have encountered far too few companies who regard pricing as a strategic lever, to be leveraged proactively, rather than in reaction to a competitor’s moves.

At the strategic level, competitive analysis is one part of the broader evaluation of where a company should play and how it can win in the market segments it regards as strategically important.  This process should be performed for new product launches and major product enhancements, and re-evaluated regularly – at least semi-annually or quarterly in the case of more dynamic markets.

The key questions to ask include the following:

• Which market segments do we consider more strategically important and why?

   

• In which markets and segments do we have a strong vs. weak position relative to the competition, and how has this been trending over time?

   

• How do our customers evaluate our price versus perceived value of our key products and services relative to competition, and how has this been trending over time?

   

• What competitive data do we need to gather and how do we source this data? E.g. through customer surveys, competitive mystery shopping, win/loss reviews, sales rep insights, 3^rd party research

   

   

Download the Competitor Response Tool to learn how to identify the revenue streams most at risk from competitor’s actions, how to evaluate where you are best positioned to respond to competitors, and to leverage tactics for each quadrant in the competitive strategy grid.

Competitive Strategy Grid

Insights gleaned from the above analysis can be used to develop a competitive strategy grid to assess the market segments where the company should play and where it is best positioned to win.  This grid can also be used to guide cross-functional discussions on how the company should respond if a competitor reduces its prices.  Evaluating this situation proactively for key competitors increases the likelihood of responding based on logical analysis instead of emotion. 

The grid can be used to proactively determine how best to compete in each type of situation, based on strategic objectives and positioning.  Before responding to a competitor’s price moves, you should first consider which markets and/or segments are actually impacted by the competitor’s actions.

Then evaluate whether to respond and by how much based on the following context:

• Strong position in a strategically important market [Attack] – You are the market leader, so the last thing you want to do is be pulled into a potential price war. Instead, empower your Marketing and Sales teams with compelling messaging and tools to communicate value to customers and show them how you outperform the competition on value delivered.  Emphasize those areas where a competitor who competes aggressively on price fails on value, and quantify the resulting costs or risks to your customer in achieving their target KPIs. Marketing and Sales campaigns should highlight the importance of those attributes that are most valued by customers and where your company is best positioned to win.

   

• Strong position in a strategically unimportant market [Hold] – As the market leader, you want to focus your sales communications on value delivered. Hold the line on price to protect your revenue stream.  One key consideration will be how responding to a competitor’s price reduction in this ancillary market may impact your price positioning in a market that is more important strategically.  In this case the best option may be to hold the line on your pricing to avoid de-valuing your brand. 

   

• Weak position in a strategically unimportant market [Follower] – In this case the best option may be to follow the market leader by matching his price reduction. This response maintains relative parity in each competitor’s price/perceived value, which also stabilizes the market.

   

• Weak position in a strategically important market [Accommodate] – Given the strategic importance of this market, you want to avoid enabling a race to the bottom. If you are in a weak competitive position, then you may need to accommodate the competitor’s share grab in the short term. However, you will also likely need to boost your perceived value through product innovations or service enhancements in order to compete more effectively.

   

How To Get Started

To begin developing your competitive strategy grid, here are three key steps you need to take:

1. Gather the competitive intelligence, leveraging both internal and external sources. The best intelligence is likely within your sales organization, so this might be a good time to visit the field and mine your reps for insights.
2. Share the key competitive insights with the core functions involved in your go-to-market process, including Sales, Pricing, Marketing, and Product Management. Gather representatives from each group together for a series of cross-functional discussions.  The goal will be to align on where you should play and how to win.
3. Develop and implement a process and accountability for re-evaluating the grid and reporting the updates with regular cadence (e.g. quarterly). This will be essential to maintain the relevance and credibility of the tool as a key element of your strategic pricing process.

    

Download the Competitor Response Tool to learn how to identify the revenue streams most at risk from competitor’s actions, how to evaluate where you are best positioned to respond to competitors, and to leverage tactics for each quadrant in the competitive strategy grid.

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