How to develop a competitive pricing strategy

Your move

Competitive Pricing StrategyA competitive pricing strategy, even if it’s a basic one, should be part of your marketing plan. Anyone can sell something for nothing. The goal is to figure out what you need to charge to make the profit you want, and if that price will fare well in the marketplace. If the price is too high, your business might never get off the ground. If you price is too low, you might get a lot of initial sales, but in the long run, your profit margin won’t sustain your continued operation.

What you’re selling and how you’re selling it affect your pricing strategy. You will make different pricing decisions based on whether you’re primarily selling a product or service and whether you’re selling online or offline.

Product vs. service

If you’re selling a product, profit margin is a factor in determining your pricing. You can determine profit margin for a product by considering cost of production and marketing of the product — including labor, facilities, and materials — to figure out what the actual cost is to produce one unit of the item. But, you should look at average market price.

Research where your competitors or other similar products in the market are priced.


Then, price your product in a space within that market. Think about if you want to be a low-cost leader, a value player, or if you can command a higher price because of brand image, quality, or features.

Selling a service is not all that different from selling a product. The perceived value and average market rate are the main factors in determining pricing for services. Take into consideration the perceived value of the service and the time it takes to perform it. How much is your time worth? You can also look at the going rate for the same service in your market area or similar areas to help determine a fair market price.

Online vs. offline

Customers who shop for products and services online have access to the World Wide Web. Remember that. So, when they find your product in their search results, they also see 20 comparable products in the list. You’ll want to ensure that your pricing is similar to what your customers will find elsewhere online or you need justify any price disparity by showing higher value or quality.

Consumers who shop at brick-and-mortar stores don’t have the advantage of on-the-spot price comparison. (Although, with the permeation of smartphones, it’s becoming more common for consumers to comparison shop on their mobile devices.) Also, keep in mind that customers are likely local to your area. These are things you can use to your advantage when determining your competitive pricing strategy.
Don’t just consider price, consider consumer impression of your business.
If one of your objectives for your offline business is to help your community, for example, this might add perceived value in paying, even a premium rate, for your product or service.

Pricing is not an exact science

You’ll find out quickly that pricing is not an exact science. A lot of your decisions will depend on your particular niche, goals, product, market share, and many other factors. Shrewd business owners use several factors to make decisions regarding pricing.

You need to think about and adopt a deliberate pricing strategy. Most businesses, online and off, guess at prices, and most go out of business within a few years as a result. Do your research, and when necessary, make adjustments quickly.

Andrea Rowland
A former small business owner and newspaper journalist, and a published nonfiction author, Andrea Rowland helps craft compelling communications for small businesses and web pros through her work as managing editor of the GoDaddy Garage. When she's not writing or editing, she likes to experiment with baking, travel, read, and dip her toes in the ocean.