Our main competitor charges $X for a similar product – should we price below them to attract price-sensitive customers, match them to avoid price being a differentiator, or price above them and argue we’re a premium option?

Based on the principles outlined in our SaaS pricing book Price to Scale, there isn’t a one-size-fits-all answer—it depends on your product’s unique value proposition, target customer segments, and overall strategic goals. Here are some key considerations to guide your decision:

• Directly Competing on Price:
– If your target customers are highly price-sensitive and you’re looking to maximize market share, positioning your price toward the lower end of what customers are willing to pay can be beneficial. As discussed in our book, this strategy works well for companies aiming to capture a high volume of users and fuel viral growth.

• Matching Competitor Pricing:
– Pricing in line with your competitor can prevent price from becoming a primary differentiator. If your product offers comparable core functionality or if you’re in a competitive segment where buyers are underscoring parity, aligning your price with the competitor’s is a viable strategy. This approach reflects the idea that the pricing decision must balance both customer volume and revenue optimization, as outlined in Price to Scale.

• Positioning as a Premium Option:
– If your product includes advanced features or superior support—and if your target market values those enhancements—you can justify a price above your competitor’s. However, it’s important to clearly articulate the added value (for example, through differentiated packages or premium service levels) so that customers see the premium as worth the extra cost. Our book highlights that for enterprise-focused products, where the market is limited but the value per customer is higher, a margin-maximizing (premium pricing) approach can be both strategic and profitable.

Ultimately, the decision hinges on:

Your strategic focus: Are you aiming for maximum volume, market share, or premium margins?
Customer segmentation: Knowing that different customer cohorts may value different aspects of your product, consider layered or modular pricing strategies (like our good-better-best models) to capture this variance in willingness-to-pay.
Competitive context: While competitor pricing is an important reference point, it shouldn’t be the sole determinant. Your unique value and cost structure need equal consideration.

In summary, use the competitor’s price as a reference, but align your pricing decision with your overall strategy and the specific segments you aim to serve. We recommend revisiting the sections on revenue optimization and segmentation in Price to Scale for a deeper dive into this process.