When thinking about pricing, do you base it on competitive alternatives or the value you deliver to customers? And what are the marketing trade-offs when choosing either option?

At Intercom we believe in value-based pricing, which means we price primarily, but not exclusively, according to the perceived value of our proudct to our target buyers. Competition is an important input, but unless you are selling a fully commoditized product for which many identical alternatives exist (ie. toothpaste), it shouldn't be the primary driver of your pricing. I could hold up two identical black rectangles labeled "smartphone" and put $999 on one and $599 on the other, then ask you " ...Read More

Basically, you do both.  Working for premium product companies, you tend to optimize for customer value learnings.  And then obviously recognize the reality of a competitive environment.  Something that surprises a lot of people is that you can shift your price up dramatically by presenting it in new ways.  Let's say your competitor sells lemonade for $5. You sell for $6 (it's "hand-squeezed" so you get the premium).  If you ask customers what they think lemonade should cost, most will say $5-$6 ...Read More

Hands down the value you deliver. In an ideal world, you figure out the willingness-to-pay (WTP) for your product in the market, and set your price close to the WTP line (and above your costs). WTP is usually figured out through research, both qual conversations with customers, partners, and key stakeholders like Sales and then quanty surveys out in the market (targeting your buyers) to get the actual price points. There are several research firms out there who can run this kind of work for you ...Read More

It would be best if you considered both options when determining a pricing strategy for a product - based on my experience, the answer typically lies between both options. You want to articulate what value you deliver to your customers and ensure your price is competitive. Typically, when you base your pricing on competitive alternatives, customers can easily compare options across the marketplace and understand how you position vs. competitors. Marketing efforts usually anchor messaging that he ...Read More

It’s always really tempting to look for “answers” among what competitors are doing. I think you should absolutely keep competitive moves in mind, but I would urge you to start from a place from the value you deliver and only rely on competition if you don’t think you can articulate the value well enough. To understand why, here are some of the pitfalls of relying too heavily on competitive moves: Information asymmetry: You might think they’re basing a choice on sound information, but there’s a d ...Read More