Is SWOT analysis helpful in setting prices?

Or a road map to disaster?

SWOT (strengths, weaknesses, opportunities and threats) analysis is used in a variety of ways for a variety of purposes.  Everything from strategy development to customer service enhancements to productivity improvement.  Given it’s versatility, is it an effective tool for setting prices?  Let’s look at each of the components.

Strengths

It would seem that knowing your strengths would be critical to effectively establishing price.  After all, how do you know what your competitive advantage is if you don’t do a strengths analysis?  Right?

That’s not been my experience.  Most companies, when analyzing strengths do so from the perspective of what they believe the customer wants.  Indeed, the ‘strengths’ they identify were often created in response to a competitor having made ‘improvements’ in their offerings.  Yet neither they, nor their competitors, asked their customers whether they valued the enhancement.

A much more effective way to determine your offerings’ strength is to ascertain which of your customers are paying the highest prices for what you offer.  Then asking them what they value most about your offerings.  While you’re there, you might want to ask them what you could do to help them serve their customers better.  Identifying your customers’ customers needs is a great way to gain a long-term advantage.

Weaknesses

In my experience identifying an offerings’ weaknesses creates only one result – lower prices for you.  It’s human nature to place greater emphasis on our shortcomings than on what we do well. The unfortunate result is that we don’t charge for the value we provide.

How do we counteract this natural tendency?  First, stop looking at weaknesses as failures.  The reality is that perfection is not humanly possible.  If you accept that premise, you know that your offerings will always possess some weakness, but so will your competitors‘ offerings.  Focus on the value that your customers see, the value you identified in your discussions with them.

Next realize that, unless that weakness is resulting in a growing number of customer complaints or costing you sales, it’s likely that it’s an aspect of your offering that your customers don’t care about.  If that’s true, then it doesn’t make sense to invest resources to remove that weakness?

Opportunities

I’m a strong advocate of remaining open to all possibilities.  I’m equally strong in my conviction that analyzing opportunities to make sure that they make sense is essential.  Over the years I’ve met a lot of people who are easily distracted by any shiny object that appears on the horizon with the unfortunate consequence that they don’t accomplish anywhere near their potential.

Here are a few questions to help you determine whether or not an opportunity makes sense for you and your company.

  • Is this something I’m passionate about?
  • Can I see myself working tirelessly to make this opportunity a reality?
  • Does this opportunity fit our strengths as defined by those who pay us the most for our offerings?
  • Is this something that our best customers, those who value what we do the most, want?

These simple questions can help you quickly and effectively determine whether what you’re seeing is really an opportunity for you.

Threats

Unfortunately too many business owners/leaders look at their competitors as possible threats.  The reality is that if you’re effectively helping your customers serve their customers, you don’t have any competitors.  Looking at others in your industry as competitors simply clouds the issues and distracts you from your primary mission – finding new and exciting ways to serve those who value what you have to offer.

Often the greatest threats come, not from within your industry, but businesses outside your industry that are serving the same market you serve.  Monitor the spending habits of your market to see where they’re shifting their spending.  It’ll give you a sense for the value they perceive and what kind of value you need to provide in order for them to remain loyal customers and for you to maintain or enhance your profit margins.

It’s counter-intuitive, but there are many more pitfalls than advantages to using SWOT analysis in setting prices.  Use the alternatives I’ve suggested and you’ll enjoy greater customer loyalty, higher prices, higher margins and a stronger bottom line.

Author – Dale Furtwengler