Almost across the board, companies spend a lot of time and energy trying to determine what their competitors are charging. Everyone believes that if they can obtain this information, they can then charge just a little bit less for their products—and win a lot of business.
This can be true in very specific situations. For companies that sell standard, relatively undifferentiated products whose prices rarely vary beyond a narrow range, it can sometimes be helpful to know what competitors are charging.
For everyone else, however, pursuing this information is a distraction at best. In fact, worrying too much about what the competition is charging is not just a waste of time, but ultimately a practice that could potentially be very harmful to your business. Here’s why:
- You will start a price war—a race to the bottom—if you regularly undercut your competitors. You can only “win” by reducing or even eliminating your profit margin. (And, of course, if you can determine your competitors’ prices, they can most likely determine yours.)
- Pricing is dynamic. Knowing your competitors’ prices today tells you nothing about what they charged yesterday, or what they will be charging tomorrow. Your detective work is never over.
- Pricing is situational. Knowing what your competitor charged one customer tells you nothing about what it charged its other customers.
- Your sources for competitor pricing info are unreliable at best—who can you trust to tell you the entire, accurate truth? Not your customers’ professional buyers, that’s for sure! It may not even be legal for them to share this info with you—and, if they do, you can be sure they’re shopping your info around, too.
- Your competitors’ prices may be too low for the value they’re providing. You don’t want to base any part of your own pricing process on a misleading benchmark that leads you to undervalue your own products and services.
- Competitor price sleuthing requires a lot of time, effort, and money—all of which could almost certainly be put to more productive use elsewhere in your business. The opportunity cost, in other words, is extremely high.
Rather than worrying too much about the competition, focus on the unique value you provide to your customers, and price accordingly.