There lies a common misconception that market leaders set the tune of the market in terms of pricing. It’s natural to think this: market leaders have the largest market share, most brand power, and customer loyalty. Since they hold the power in the market, their pricing decisions set the norms for the industry, which often leads to smaller competitors following their lead to try and stay competitive and relevant. 

However, following market leaders is a risky strategy to undertake as a small competitor with minimal power in the market. This strategy puts the small competitor at risk of low margins or at worst selling at a loss. It leads to vulnerability in price wars and copying prices signals to the market that the brand is a follower, not an innovator. An unideal position to be in the creative fields. 

Going Off the Beaten Path: Alternative Strategies to Pricing 

How can small competitors avoid falling into the trap of following the market leader? Even in industries where differentiation is minimal and brands have low power, following a market leader’s pricing is a signal that the competitor has failed to position their product. 

To a buyer, all products are different and have their own value. For the brand, this provides a unique opportunity to understand what value their customer is looking for and to value match it with their offering. How? There are several avenues for brands to position their offering: brand differentiation, product differentiation, or pursuing niche markets. 

Brand Differentiation 

Behind every good, distinguished brand there is a unique story. Brand power is a powerful way to differentiate. It’s a strategy commonly used in the wine industry for premium offerings. Like with wine, in creative industries, artisanal and careful curation are premium features that customers may be willing to pay more. However, it’s also important to note that price is an important signal of premium offerings, and offering a premium product with low price can confuse customers and cause harm to the brand long-term. 

Product Differentiation 

Another method for differentiating your offering is to offer different sets of value at different price ranges to different customer groups. Having a “good”, “better” and “best” alternative to meet the demands of different customer segments allows you to value match a wider range of customers. However, be wary that these different offerings are clearly differentiated in terms of the different features that customers value. 

Niche Market 

A great way to differentiate is to meet the value needs of an underserved niche in the market. Finding underserved customers and creating an offering that matches the value they are looking for will help you create a loyal customer base. 

Bottom-Line: Don’t Look to Market Leaders for Price Inspiration 

When you understand the customer segments that you are targeting, pricing your products becomes easier. Brands with strong brand, differentiation or niche markets don’t look to market leaders and follow their pricing strategies because they understand their target customer and are able to cater to their needs. In these cases, the pricing strategy starts from the buyer and understanding their perceived value. This allows these competitors to strive in uncertain times, leaving them less at risk of price wars and selling at losses.