Modern Price Calculation in the Sign and Display Industry, Part 3: Competitive Pricing

The first and second parts of our series on pricing focused on setting prices based on one’s own costs. Both full-cost accounting and contribution margin analysis are perfectly sensible and legitimate ways of calculating a price for a product. Unfortunately, with both of these approaches, it is possible to end up with a price that is not competitive, for example, because a competitor next door, with a different cost structure, is offering the same product at a significantly lower price; or you might set a price that, whilst cheaper than the competition’s, is lower than what the market would readily accept.

A good basis for competition-based pricing is competitive research. Who are my competitors, and on what terms do they offer their products? It is important to include not only direct competitors – that is, companies offering the same service – but also indirect competitors in your market research. In the field of textile finishing, these may include, on the one hand, other textile finishers who finish textiles using cutting plotters, flex and flock foils and a transfer press; on the other hand, they may also include online service providers such as Spreadshirt, print shops, copy shops, embroidery businesses or sports shops that offer a similar service.

Whilst prices are communicated relatively openly in some sectors – for example, when selling online – in other sectors it may be necessary to ring competitors and enquire about prices for various services. You can also openly ask customers or prospective clients about competitors’ quotes; customers are often willing to provide information in the hope of securing a lower price for the service in question.

Whether a prospective customer ultimately decides on a product at a particular price does not depend solely on the price itself. If products were purchased solely on the basis of price, there would be only one supplier for every product. Other factors therefore also play a role in the decision, for example:

To be able to command a higher price, it is important to differentiate oneself from the competition. In what ways can I set myself apart from the competition in a positive way and thus achieve a higher price?

After analysing the competition, the next step is to set a price that, on the one hand, is based on competitors’ prices. Ideally, you should undercut the competition, particularly in the early stages, in order to build up your own customer base and generate a loyal clientele. Ultimately, of course, the price must be recalculated – as with contribution margin analysis – to ensure it actually covers costs.

Another important factor is regularly reviewing the price. New competitors may have entered the market in the meantime, or existing competitors may have left it. Prices for services can therefore fluctuate, sometimes due to seasonal factors. In the advertising technology sector in particular, demand is often significantly lower in winter than in summer, meaning that better prices can usually be achieved in summer than in winter.

To determine a price, it is advisable, for example, to create a summary table in Excel containing products and competitors in order to gain an overview of the various prices on the market. Here, you can base your decision on the cheapest provider or the average price, for example.