How to Conduct a Comprehensive Pricing Analysis
Master the art of pricing with our guide to price analysis and its impact on your business. Find out how to optimize your pricing strategy and profitability.
August 11, 2023
When it comes to running a business, pricing is a critical component that can make or break your success. It’s difficult to strike the balance between competitive prices and making a profit.
To find the “sweet spot”, you must consider a variety of factors. Competitor pricing, market trends, and consumer behavior are examples. And you need a process that helps you put everything together.
That’s where pricing analysis comes in.
In this blog post, we’ll dive into pricing analysis. You’ll learn how to apply a strategy to enhance your profits, market share, and gain a competitive advantage.
Pricing Analysis: An Overview
Many experts believe price is the deciding factor in most purchases. The pricing models you use is one of the most important business decisions you’ll make. If you set higher prices than the market allows, you risk losing potential customers to competitors. But set your prices too low, and you’ll struggle to turn a profit.
A price analysis is a process used to determine the optimal price point for a product or service. It’s the starting point for pricing that involves researching and reviewing all strategies involved in the pricing process. To do an analysis, you must consider any pricing factors you think will impact your ability to sell your product or service.
In this sense, pricing analysis is a combination of art and science. It involves understanding what your customers value, their price sensitivity, and how they make purchasing decisions. Understanding these factors will help you develop a pricing strategy for your business.
You’ll need both qualitative and quantitative data to perform a competitor pricing analysis. This includes historical product and pricing data for your competitors and for your own brand. This data allows you to uncover trends and patterns. As a result, you’ll be able to develop the right pricing model for your business.
A price analysis is a process used to determine the optimal price point for a product or service.
Pricing Analysis vs. Competitive Pricing Analysis
There’s some confusion around the difference between pricing analysis and competitive pricing analysis. So, I’d to clarify these terms before we go any further.
Analyzing competitors’ prices is a part of the price analysis process.
The goal of competitive analysis is to explore the specific price points of competing brands. Then, you can see how you fit into the competitive market from a price perspective. This is important because your customers are comparing your prices to other brands. So, this part of the process allows you to step into your customers’ shoes and see your brand as they do.
Pricing analysis is a comprehensive procedure that involves all aspects of price positioning. An analysis considers all factors that influence pricing and profitability. Margins, cost of production, and required return on investment are examples.
Companies use market research and other data to figure out what consumers might pay. Then, they can develop a competitive pricing strategy that best fits the brand’s revenue and growth goals.
Benefits of a Pricing Analysis
In this section, I’ll share four key benefits you’ll get from conducting a thorough pricing analysis.
Increase Profit Margins
For businesses to thrive, they must not only make a profit but also avoid loss. Lost profits can have a devastating effect on a company’s financial sustainability. So, you need to set prices that allow you to stay profitable without under- or overpricing.
As an example, an analysis can show businesses which offers are the most profitable. This will help them avoid over-discounting or offering unnecessary promotions. While lower prices can drive sales, they can also reduce margins.
A pricing analysis helps businesses understand the market dynamics that impact their products or services. It allows them to evaluate factors that influence pricing. Consumer demand and market trends are examples that help companies set optimal prices.
Another advantage of conducting a pricing analysis is that it can provide greater visibility into the cost structure of a business. This lets businesses assess the cost of goods sold, production cost, and other expenses associated with selling their products or services. By understanding their cost structure, companies can identify opportunities to reduce costs and increase profitability.
Discover Competitive Pricing Strategies
By understanding competitor prices, you can find a pricing “sweet spot”.
Let’s say your product offers extra features that benefit a specific market segment. Let’s also assume a competitor offers something similar at the same price point or lower. Here, you could create a messaging campaign to highlight the differences. This would show customers the value they’re getting for the extra cost.
On the flip side, if you can produce products at lower costs, you could undercut competitors to ramp up sales.
A pricing analysis can also give you deeper insights into the customers you serve. You’ll learn more about the key characteristics that define your best customers. Examples are demographics, such as location, age, gender, income level, and spending habits. You can use each of these factors to develop an accurate picture of the ideal customer types.
We don’t recommend setting prices based on product features or production costs alone. You should also consider your audience’s disposable income range and their buying habits. This will reveal the potential profit that exists within those customer segments.
Strengthen Your Brand’s Position and Increase Market Share
The price of a product or service is an indicator of its quality. How customers see your prices influences their opinion of your brand.
For example, if you sell the same product as competitors at the lowest price, customers may doubt its quality. This sentiment carries over to your brand as well. If customers think your product has inferior quality, they’ll think your brand has less value, too. This is an unfavorable perception that damages brand equity.
Take the guesswork out of pricing your products and services. Get expert insights to help you choose the right pricing strategy for your business.
Conducting a Pricing Analysis
In this section, we’ll look at the factors to consider in your analysis.
The Target Market
The target audience dictates much of your business strategy. But knowing simple demographics may not be enough. You should also look at customers’ budgetary restraints and pricing opinions. Every segment of the market is different. Your pricing strategy must reflect that.
Here’s how to make sure your prices are right for the target audience:
First, define your target consumers. Whoever they are, you need to know who you’re targeting before you can know if your pricing is on point.
To do this, you’ll need details about them. For example, median income can reveal whether your products or services are affordable. Your audience’s disposable income level is another crucial piece of information. Knowing what it is can avoid setting prices that are too high.
Your customers’ buying habits are another consideration. How much do they spend on products or services in your category? The answer can help you set prices and refine offers.
Another factor to think about is who they’re buying from now, and why. Perhaps their current provider offers a specialized package that you could replicate. Maybe the competitor offers a loyalty discount that your customers value. Knowing why they choose a brand over others can help you develop stronger messaging.
Competitive Pricing Analysis
Your competitors’ pricing strategies play a dramatic role in setting your prices. To do competitive pricing analysis, use direct and indirect competitors.
Direct competitors operate in the same market and sell similar products. But you should also review a short list of indirect competitors. These businesses may not operate in your market, but they could compete anyway.
For example, an in-home workout equipment brand may not be direct competition for a gym. But people could opt to buy equipment and workout at home instead of paying a gym membership.
Use competitive pricing data to research their product positioning tactics. This includes historical data on base prices, discounts, and promotions.
Once you have this information, run a comparison analysis. Look for opportunities to differentiate yourself. For example, if competitors sell at premium prices, you might gain an advantage at a lower price point.
Also, consider the market demand for your product or service. If there’s a high demand and limited competition, you may use a premium pricing strategy. But if market demand is low or saturated, you may need to lower your prices to remain competitive.
It’s important to note that competitive price analysis is not a one-time task. You should continue to watch your competitors’ prices to adjust your own strategy.
Analyzing Current Economic Conditions and Market Trends
In today’s fast-paced world, market conditions can change at a moment’s notice. Many businesses scramble to keep up. That’s why they must be able to adapt quickly. Staying on top of current market trends is one of the most effective ways to prepare for change.
Market analysis provides businesses with insights into the complexities of their industry. Without it, businesses may miss opportunities to adjust prices. They may also overlook threats that could inhibit growth.
When monitoring trends, consider your competitors’ marketing strategy, substitute products, and price changes.
Businesses can use software tools to help them keep up with competitors' pricing strategies. Prisync in one example.
Setting Profit Goals and Margins
Profit goals play a significant role in a pricing analysis. But setting these goals and margins can be a tricky task.
Set profit goals first because they influence the pricing strategy you’ll use. For instance, customer retention is a profit goal. So, you could offer discounts or loyalty programs to existing customers. This would encourage them to stick with your brand, even if your prices are a little higher. Over time, the repeat purchases from existing customers will increase revenue. It’s also easier to sell to current customers than to attract new ones.
Increasing profit margins is a common pricing analysis goal. Margin is the difference between the cost of producing your product and its selling price. A high margin means you have a lot of room to adjust prices. A low margin means you need to be careful not to undercut production costs.
Determining Optimal Prices for Individual Products
The best pricing strategy appeals to customers and optimizes profit.
Setting optimal prices requires accurate data. You should also include a combination of qualitative and quantitative data. Using both will help you figure out how much customers will pay for your product or service.
It’s also important to understand the concept of a value metric. A value metric is used to help a company measure the per unit value of its product for a sale.
There are three key principles to consider when evaluating your value metric. First, make sure it aligns with the needs of your customers. For example, if your product is a help desk, charging per seat may be appropriate.
Second, the value metric should be easy for customers to understand. Abstract values will be difficult for customers to appreciate. This also means they won’t pay for them.
Finally, your value metric should grow in proportion to your customer base.
Once you have customer data and established a value metric, it’s time to develop pricing tiers. These should correspond to the specific customer segments you identified during your research.
Each tier should align with your value metric and meet the needs of your target customers. This approach enables you to set prices that align with your goals and please your customers.
Performing a Pricing Analysis with The Brand Auditors
Maximizing profits is the ultimate goal for any business, but it’s not always easy to achieve.
In today’s fast-paced market, you must have the right pricing strategy. Otherwise, you could be losing sales or leaving money on the table.
The Brand Auditors can help you with a pricing analysis. We’ll work with you to find the sweet spot that balances customer demand and profit. We’ll also show you how to adjust your prices in real-time so you can stay competitive.
So, if you want to maximize your profits, it’s time to invest in a pricing analysis.
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- Increase ROI on lead generation and sales conversions.
- Reduce marketing expenses.
- Strengthen brand positioning to become more competitive.
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