Flying Blind With Your Pricing Strategy

What does aviation have to do…

…with your pricing strategy?

Imagine that you’re a seasoned pilot. You’ve filed your flight plan when a massive snow storm hits. Visibility is zero and the winds are gusting up to 30 knots. Are you going to take off? Not unless you have a death wish, right? You know the dangers of flying blind.

Yet business owners fly blind time and time again. How? Let’s say that your competitor comes out with an improvement to its offering. Your sense that the enhancement is going to give them competitive advantage so you scramble to provide a similar enhancement. You just took off in a blinding snow storm.

First, you don’t know whether their customers, or yours, will value this enhancement. Unless your competitor raised its prices to reflect the additional value the enhancement provides and their customers are paying that price, you don’t know whether the enhancement has any value to the customer.

Second, many business owners give away these enhancements without ever asking for higher prices. Their rationale is that they’ll gain “competitive advantage” and garner a “larger share of the market.” How often has that really happened in your industry? Isn’t it more likely that there was little, if any, shift in market share?

If that’s true, your competitor drove up its cost structure without gaining any additional revenue. That means its margins just dropped. Worse yet, you followed them blindly.  Your costs are going up as well, without the benefit of additional revenues. If that weren’t bad enough you just made additional investments to do so. Ouch!

It’s counter-intuitive, but following a competitor’s lead in enhancing their offerings without evaluating their approach and the impact it will have on their bottom line is the equivalent of abandoning your flight plan and taking off into a blizzard. The results can be devastating.

Author – Dale Furtwengler