The Pricing Newsletter

July 2019 issue

Hello Pricers!

I'd like to wish you all a very happy Independence Day. Have a wonderful tenth of July!

Wait, the tenth? Have I gone mad? I'm sure that you're all about to correct me. Everyone knows that Independence Day falls on the fourth.

Well, not for people in The Bahamas.

It turns out that we all make many assumptions without even realizing it.

Do you ever wonder about the assumptions that you've made regarding your pricing strategy?

Pricing Question from a Reader

Today's question comes from reader K. J.

I'm now forced to compete against a couple of well-funded companies that entered my market. I just can't offer what they do at an equivalent price. They have too many resources, and I think they're even willing to operate at a loss. As a result, I'm losing customers left and right. What can I do to survive?

Many business owners believe that their products have to match their competitors' products point for point. As I explained in my article, Avoid the Red Queen, this type of strategy isn't always a great idea.

In fact, if every market participant achieves perfect parity with the others, they will soon discover that they have commoditized their marketplace, leaving no firm with significant pricing power.

Nevertheless, pundits are quick to point out that, in any marketplace, there are order qualifiers (qualities that must be met to even have a hope of competing) and order winners (qualities that lead to significant levels of success).

Some characteristics may be necessary just to be considered by shoppers, some characteristics may be necessary for marketplace domination, and some may not matter in the slightest. The ability to identify and replicate the most vital characteristics should, at least theoretically, determine whether a firm can stand a chance of surviving in a market awash with powerful new entrants.

You need to be clear about what you are selling. If you manage a consultancy, are you selling answers to urgent questions, or are you selling prestige in a box? The former might hire from non-target schools. The latter? No way!

I could go into more detail, and many popular business resources do. That said, the traditional model relies upon two dubious assumptions:

For many businesses, neither is true. If you can't beat your competitors at their own game, you are always free to take part in a new one.

Here are a few possible approaches to your situation:

We're often trained to think that competition needs to be met head-on. This is rarely the case. Often a bit of ingenuity is all that is required to survive in the face of seemingly unstoppable competition. Of course, when in doubt, it never hurts to be seen as the premium option.

Questions come from readers like you. If you'd like your questions answered, send them my way.

Pricing in the News

From the Blog Archives

Notable Pricing Quote

"Idealism is fine, but as it approaches reality, the costs become prohibitive." -- William F. Buckley, Jr.

Shameless Commercial Plug

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Do you know people who don't understand the difference between supply and demand? Do you work with people who just don't grasp the meaning of cash flow?

Now you know where to send them!