Lag, Match or Lead?

There are only 3 pricing strategies in the market. You can lag the market…meaning you price yourself at the low end of the range. You can match the market…and try to position yourself right about at average of your competitors in terms of pricing. Or you can Lead the market…and price yourself at the top of what the market will pay.

So, which pricing strategy is best? It all depends on your vision and business strategy.

Many newer and aspiring service businesses focus on price…they want to be ‘affordable’. Often, they are afraid to price their services too high, and so they end up with a “lag” strategy by default…and price low. This strategy only works on volume. You need to sell A LOT to make a decent return, and when you’re selling a service this can be really hard to do. Also, if you lag the market you’re going to get clients who are very different than if you match or lead. At the lower end of the market you’re going to get clients who are VERY price sensitive. They want a deal. They want a bargain basement price. AND they want great service. For a very small service business this is the death trap! You will burn out because you have to work so hard for every penny.

At the middle of the market you have the pricing “matchers”. These businesses pay close attention to what everyone else is pricing at and stick to that like glue. Now, if you want to have “mass market” appeal (reach the majority of clients and prospects in your space) you’ve got to have a “match” pricing strategy most of the time. You can definitely make a profit here, but you have to really watch your costs of delivery. You’ll work with clients who are willing to spend, within limits. They are looking for some extra’s to make them feel like they got a great value. The key thing is you have to have unique positioning so you can get noticed in the mass-market middle. There’s a bigger ‘bubble’ of potential customers, but there is also lots more competition here. It can be done, but you have to know what makes you unique and really capitalize on that. This is where having a tight focus, a targeted niche, or a specialty can really help you out. You’re not competing on price…so you have to know what you are competing on.

Some businesses choose to position themselves at the ‘top end’ of the market by targeting a smaller slice of the high end customers, and with higher price points. As a market leader, your pricing strategy has to match your value or it’s not going to work. If you serve higher end clients and those who prefer customized, high end services and products make sure you deliver on the promise of high value, high impact, high quality products and services. These clients tend to buy at the top of the market price and expect a top-notch experience. Even if they are happy to pay “top of market” prices, these clients still want to feel like they got a great value. As a pricing leader, you can create programs, services and products that are high-touch because you’re working to serve a smaller, more select group of clients.

So, take some time to think about your overall business vision and which pricing strategy fits you best. How do you want to position yourself in the marketplace? And how do you and your business need to ‘show up’ and deliver in order to match that strategy?