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Is gathering your competitors' pricing information a worthwhile endeavor?

October 12, 2011 by Dale Furtwengler — President, Furtwengler & Associates, P.C.

Conventional wisdom is that you need to know your competitors' pricing. My question is, "Why?"

The answer I get most often from business owners/leaders is that their company's pricing has to be competitive. Then I ask, "So what is a competitive price? Is it 10 percent more, 10 percent less, in line with your competitors? What does it mean to you to be competitive?" Interestingly few have a concise answer. They simply feelthat their price needs to be close to what their competitors are charging.

Lack of a clear definition of "competitive price" isn't the only problem. There are a number of flaws in the conventional wisdom regarding the value of pricing intelligence.

First, it overlooks the fact that we tend be more critical of our offerings than our competitors' offerings. We know where the warts are in our offerings. They're less visible when viewing competitors' offerings. It's difficult to get fair compensation for the value you provide when you're consistently discounting that value.

Second, most of your competitors' don't have any better idea of how to quantify value (dollars/cents) than you do which means that they, too, have defaulted to "industry pricing." How is gathering pricing intelligence from people who don't know any more than you do going to help you establish your prices?

Third, if you have an effective business strategy — one in which you're providing something the market wants or needs that it isn't getting — how is your competitors' pricing relevant? There is no frame of reference among your competitors. You've got that market entirely to yourself.

Fourth, gathering competitive pricing intelligence focuses the seller's, and ultimately the buyer's, attention on price instead of value. It's value that the vast majority (more than 85 percent) of buyers want, not the lowest price. The reason why they seem so price-conscious is that's where we've focused their attention.

Finally, most businesses have taken on business that they shouldn't have. Whether it's because they needed the cash or they thought something was a good idea but it didn't pan out, they've taken on business that they shouldn't have. To get, and retain, that business they've discounted their prices. By using their pricing as a frame of reference you're paying for their mistakes with your pricing. Ouch!

Getting back to the original question: Is gathering your competitors' pricing information a worthwhile endeavor? I have to say "No." Indeed, I encourage my clients NOT to look at their competitor's pricing. It helps them avoid the pitfalls outlined above. Hopefully these insights will help you as well.

About Dale Furtwengler

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