Breaking Down Your Competitor’s Pricing Model
Breaking down your competitor’s pricing model can offer valuable insights when it comes to changing your own pricing strategy. The best part? It’s actually easier than it sounds.
A good place to start when contemplating a pricing strategy change is looking at how your direct and indirect competitors price their products. Knowing about other pricing models provides valuable insights because it:
- Shows you what customers are used to seeing in the market.
- Identifies price ranges which can be used as a starting point for thinking about how to price a product.
- Provides new ideas and perspectives on how to think about pricing in your market.
Most B2B software executive teams know less than they think about competitor pricing models. When they evaluate their collective knowledge, they typically find many gaps.
Pricing strategy changes are a major decision for a young organization because it is guaranteed to have a significant impact on the bottom line. Therefore, expansion-stage management teams need to invest the time to educate themselves about pricing models in their market to ensure they’re considering all options.
Figuring out how a competitor pricing model works is actually easier than it sounds. The most important task is structuring the research the right way.
4 Factors to Consider Before Diving into Competitive Pricing Research
1) Understand the different components of a pricing model
This will help ensure you are asking the right questions when searching for information. It will also make a huge difference in the amount of information you are able to uncover. The table below breaksdown the common pricing components used in B2B SaaS pricing model:
Pricing Components Table
2) Only research information relevant to your pricing changes
This means narrowing the target information list to the key components of interest as well as the peripheral factors around those components. Pricing research can become a wild goose chase if not scoped right, so you need to make sure you are focused on the few data points that are most meaningful to you. I also suggest prioritizing the data points, so that you know how and when to allocate research efforts.
3) Set expectations upfront
Understand that there will be missing data. Also, it’s important to realize that there are diminishing returns to searching for specific data points that can set-in rather quickly.
4) Identify the best approaches to get this information in an accurate and timely manner
There are many ways to learn about competitors. I suggest starting with secondary research because it is the least time consuming approach, and it can help develop a pretty good picture of a competitor’s pricing model on its own.
The following secondary research approaches can be some of the most fruitful depending on your market and the types of companies (public, private, etc.) you are looking at:
- Company website – This is a very rich resource. You will want to look at the pricing page, the sign-up process, the FAQs, the product Terms & Conditions, as well as go through any online demo or trial processes.
- Analyst Reports (Gartner, IDB, Independent firms)
- Industry Bloggers
- Customer review websites (i.e. Better Business Bureau Reviews, Contractortalk.com, GetApp)
- Forums (Quicksprout)
- Q&A Sites (Quora, Stackoverflow)
- Employee Reviews (Glassdoor)
If you can’t find what you are looking for, the following primary research approaches can be very fruitful as well:
- Interview people internally who came from competitors
- Interview Former Sales Directors/Account Managers/Sales Reps from Competitors
The advantage of these approaches is that they can help you develop an overall understanding of the competitor pricing model, rather than just collect a single data point per a respondent.
Other primary research approaches that you might want to consider are:
- Secret shop a competitor
- Interviewing/surveying customers won away from target competitor.
- Interviewing/surveying customers lost to target competitor
- Survey/Interview competitor profiled customers
The downside of these approaches is you have to collect information from several respondents to develop a good understanding of the competitor pricing models.
The issue with all primary research approaches is that they can be very time consuming. So you will need to evaluate the value of the specific data point versus the cost of collecting it. This is an important consideration because your pricing strategy is directly tied to the bottom line, so the longer you wait to change it could mean missed opportunities, but you also need to make sure you are well informed and in a position to make a smart change to the strategy and pricing model.
Understanding these 4 factors will making setting up a research plan to deconstruct a competitor pricing model much more manageable and will also help you cut down on the time commitment to get this information.
Before starting your research, I highly recommend reading the following resources:
- MIT Sloan Article – “Is It Time To rethink Your pricing Strategy?
- Price Intelligently eBook: – “The SaaS Pricing Page Blueprint – Chapter 2: Pricing Tier Structure”
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