.png)
Estd 4.22.2023
Based on our book Price to Scale, your pricing strategy as a new entrant should be closely linked with your overall positioning—it’s not simply a binary choice between undercutting competitors or setting a premium price.
Here are some key takeaways from the book:
• Positioning Drives Pricing:
As highlighted in Price to Scale (see Chapter 2 and the example on positioning around page 21), your pricing must reflect how you position your product in the market. Before deciding on whether to undercut or premium price, you need to have a clearly defined value proposition and target customer in mind.
• Trade-Offs Between Market Share and Margin:
Pricing near the lower end of what customers are willing to pay can help you maximize market share—this is a common strategy for SaaS models aiming for rapid adoption. However, while lower pricing may drive volume, it might also mean thinner margins. Conversely, setting a premium price is effective if your product offers unique features or a superior experience that justifies the extra cost (as discussed on page 93 of Price to Scale).
The choice between the two isn’t about merely undercutting incumbents; it’s about striking a balance that aligns with your business goals.
• Strategic Considerations for New Entrants:
- If your market research shows that customers are highly price-sensitive and the competitive landscape is crowded with similar offerings, a lower-price strategy might be the better route to gain traction.
- If your product has distinct differentiators that signal higher value, a premium pricing strategy can position you as a quality or specialized provider, thereby avoiding a race to the bottom.
• Practical Application:
Begin by clearly defining your product’s positioning and the specific problems it solves. Once you understand what sets you apart, develop a pricing model that supports that positioning while addressing the market’s willingness to pay. Consider the long-term implications—whether you’re aiming for broad market penetration or carving out a niche with higher margins—and adjust your strategy accordingly.
In summary, the decision should be based on a thorough understanding of your product’s unique value, the market's price sensitivity, and your overall strategic goals. Our book Price to Scale emphasizes that “pricing is intimately connected to positioning,” so your pricing should be a natural extension of the brand and value you aim to communicate.