Stop copying competitors’ prices. Outsmart them.

If your pricing model mirrors your rival’s, you’ve already agreed to their margins.

Obsessing over how much your competitors are charging and trying to work out how to compete with them only ends in one outcome – ever declining margins.

The smarter move is to rethink your monetisation strategy so you can avoid the trap of competing on price, and instead present a commercial offer to your market that really differentiates you.

Don’t cede control

However you price, if your pricing model is largely the same as the rest of your market, your internal culture will become very price driven, and not in a good way.

Whether you price per user, per hour, per item or per project, you are effectively following the market and you are giving up control you have over the commercial relationship with your customers.

Impact of your competitor obsession

This results in the following symptoms:

• Competitor-anchored pricing trains buyers to treat you as interchangeable, leading to discount pressure and lower average prices & margins.
• Procurement can easily compare and contrast price offers and apply downward pressure on the shortlisted companies
• Sales teams over utilise discounts and give away free services or add-ons in an effort to close the deal.
• Internally, pricing becomes a debate about matching the market, rather than capturing the value you create.

You won’t win over the long term with this kind of approach, so something needs to change to give you a lever you can pull to give you an advantage.

How to win

The smartest companies adopt a deliberately different pricing model that helps position them separately from the competition and better aligns the prices they charge with the value they create for their customers.

Here are four companies that changed their pricing model - and won as a result.

• Slack – they used to charge a “per seat” policy like every other competitor in their market, resulting in never-ending downward pressure on pricing. They changed their pricing to a “per active user” price model so that customers only get charged for those employees who actually use the product in any given month. This aligned price to usage and reduced friction to add more users for clients.
• Basecamp – they rejected per-user norms in their market and went all in on a single price per organisation, irrespective of size of the organisation. So, any company can now pay $299/month for access (original price was $99/m) whether you are a global giant or a small business. Their pricing page declares the number of new signs up every week to trumpet the success of this approach.
• HubSpot – rather than charging a price per contact in your marketing database, they switched to only charging for contacts that were actively used for marketing. So, you can have a database of 100K contacts and only market to 20K of them, and only be charged for those 20K. This means they were pricing for “reach” rather than storage which is exactly what the client was measuring.
• Michelin Fleet Solutions – in one of the best examples of pricing innovation, Michelin shifted from selling a “£/tyre” to a “£/mile” so fleet owners paid for tyres in line with actual usage and avoided having to pay large sums to fit out their fleet. This resulted in better cash flow and greater peace of mind for fleet operators, and greater revenues for Michelin.

Why this works

All these examples change the pricing conversation from “are you cheaper than X?” to “what outcomes do we want and how much value do we get?” Pricing focus moves from competitor anchors to customer value.

The examples shown are not just changes of pricing model, they are fundamental changes to the business model.

If that sounds like a step too far for you at your stage of growth, there will be simpler things you can do that can help to move you away from competitor focussed pricing.

Simple steps to get started

• Tier your offer: create Starter / Pro / Enterprise options with a clear outcome jump at each tier.
• Use high price anchors: introduce a premium option or reference a materially higher alternative to frame decisions.
• Differentiate terms: vary prices by contract length and payment terms (monthly vs annual, 12 vs 24 months) to reward commitment and cash flow.

Next Steps

If your pricing still shadow’s a competitor’s price list, you will never win that battle unless something changes.

Get in touch if you’d like a quick review of your current pricing model to see what the art of the possible might be.

Sources / Further reading

Slack — Fair Billing Policy: https://slack.com/help/articles/218915077-Slacks-Fair-Billing-Policy

Slack — Active user definition (billing): https://slack.com/help/articles/23546798305171-FAQ--Updates-to-Slack%E2%80%99s-active-user-calculation

Basecamp — Pricing page: https://basecamp.com/pricing/

HubSpot — Marketing Contacts announcement (Oct 21, 2020): https://www.hubspot.com/company-news/hubspot-introduces-marketing-contacts

HubSpot — Legal note on Marketing Contacts availability: https://legal.hubspot.com/pst/archive/2020-10-01