My answer to What are the strategic ways to beat your lower-priced competitor?
Answer by Ken Larson:
Profile your competition. It is not sufficient to simply see what the competition is charging. It is necessary to model the flexibility of your competitor to modify established pricing based on your competitive pressure.
An effective competitor profile contains performance, historical, demographic, statistical, physical operations, human resource and cost information that is trending in nature and provides insights and comparative balance your pricing.
It is a key tool in performing risk analysis and making related trade off judgments in your marketing strategy.
- Visit your competitor’s location, particularly if it is local.
- If it is not local use the competitor’s web site, BBB reports, D&B Reports and the like to determine information like:
- Assess the size of the operation,
- The traffic entering and leaving
- Relative indirect cost factors that can be generally observed,
- Square footage,
- Headcount of employees,
- Size and content of the parking lot and related matters.
Model labor, material and other direct costs assuming your competition is paying in the same range as your business to retain employees and supplier deals. Then burden your direct costs with your estimate of the competition’s likely overhead and a reasonable profit based on your competitor’s profile.
Compare the completed model to your pricing and conduct trend analysis as time goes on and your marketing program begins colliding with the competition.