The biggest streaming companies offer similar services at different price points.
Why?
What differentiates Netflix, Hulu, Disney+, Max, Paramount+, Amazon Prime, Apple TV+, and all the other streamers out there from each other?
(Wow. That’s a crowded market.)
Coming up in this post, you’ll learn:
A pricing analysis is a strategy that involves researching your audience, market, and competitors to find an optimal, data-driven price for your product or service.
Successful product-led companies know their customers and what features they find valuable. They also know what their competitors charge and where they sit in the market.
The process of finding out this information is a pricing analysis.
Want an example? Spotify recently announced an increase in its subscription charge. We worked out the optimal price it should charge for a subscription using Decipad: Spotify subscription pricing analysis.
Whether your an e-commerce company, freelancer charging an hourly rate or responsible for pricing at Spotify, the reasoning is the same: you need to know how much people are willing to pay for your product or service right now.
And, you need to account for future fluctuations in things like:
A successful pricing analysis fits your audience today and scales into the future. Because no customer wants to deal with an inconsistent, ever-changing price. It’s not a good look.
Make pricing an ongoing process that regularly confirms you’re charging the right amount for the value your product delivers and adapt to change when necessary.
The right price can boost sales volume, increase your market share, and steal potential customers from your competitors. (All things that go down very well in the boardroom.)
Most businesses conduct a pricing analysis to improve profitability. But, the benefits go beyond that. A strong pricing analysis helps you:
Think of a pricing analysis as a way to hone and amplify the value you deliver to the people your selling to. And this knowledge dictates your optimal price.
Some people use the phrase “competitive pricing analysis” to refer to the entire model. They might even base their pricing exclusively on what their competitors charge.
Let’s clear that up first. Comparing your competitors’ prices is only one part of a cohesive strategy.
Here are four other essential parts to conducting a thorough pricing analysis model:
Each of these strategies should look at current findings, future predictions, and historical data.
Let’s dive deeper into each of these areas, so you can know if it’s time to shake things up and optimize your pricing.
Any price change should be a result of evaluating multiple aspect of your business.
Here’s the playbook:
The simplest form of pricing is this: total all your costs and add the margin you want. Task complete ✅.
Not so fast. This method presumes that all your expenses and suppliers adhere to set prices. That's not realistic.
To start, gather all your costs to build, create, and maintain your product or service, such as:
Segment your costs into types: fixed, variable, and semi-variable. This allows you to calculate a more adaptive and precise model.
Aggregate all your costs into your baseline. Now, you can add additional variables, like a buffer for inflation and target profit margin to play with different scenarios.
Here are two templates to help you in this step.
The art of pricing means extracting the maximum value from your buyers. After all, you're offering a solution and aiming to make it genuinely worth their investment.
After calculating your costs, evaluate your price and target profit margin against the economic climate in your target markets. Consider ethical, legal, and market factors.
For example, in an environment of soaring inflation, customers tend to tighten spending on "luxury" items. Let's take the US. While spending has risen since early 2020, spending growth lags pre-pandemic levels due to inflated prices.
In response, 85% of software companies in a recent survey said they plan to adjust prices and drive value over the next couple of years. But what does that look like?
Roughly 50% say they’ll likely need to reduce discounts and increase renewal prices.
How do you take necessary measures and avoid mass churn in the short-term? In times of inflation, McKinsey suggests these pricing tactics to preserve customer loyalty and maintain long-term value:
A competitive pricing strategy is not just about comparing price. It involves three tasks:
Once you've gathered your competitive list and relevant data, look for patterns and trends to determine where you fit in terms of price and value.
If Netflix compared itself to its direct competitor, Disney+, a comparison might start off like this:
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A competitive analysis helps you identify the distinct value and benefits your product or service offers relative to other solutions.
It's not just about a price, but communicating your value to the people that could buy your product.
Don't just let the output of your competitive analysis build dust. Transform your insights into actionable strategies.
Consider creating a Pricing Return on Investment (ROI) model that showcases your product's unique value proposition to your customers.
Now, let's discuss how to find out the kind of price point your target consumers are willing to dish out.
Who’s the most important group in all this? The people buying your product.
It's critical to understand your customer's "willingness to pay."
To find the right price point you need to know your target's demographics, like age, income, and location. And more importantly, their motivations, like brand value and urgency of need.
Demographics are typically easier to access. It's information you can gauge from your own customer data, market research, and social media.
For example, if you’re targeting 43-58-year-olds that live in regions with higher disposable income, that data could be grounds for a higher price point or markup:
But you shouldn’t solely rely on demographics. You want to also understand deeper motivations. What's driving your customers to really value your product?
Take King Charles and rockstar Ozzy Osbourne.
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The pair share several significant attributes that could place them in the same customer segment if using demographics alone. But, it’s more important to segment people by their pain points and motivations.
These can be harder to find out.
You need to talk to your customers and people who fit your ideal customer profile (ICP). It can be through informal discussions or structured surveys and interviews. Ask questions like:
These insights will shape a more informed pricing strategy, providing a holistic picture of your competitive advantage beyond price alone. As Harvard Business School professor, Bharat Anand says in his course Economics for Managers:
We often wonder why people might be willing to pay for a product when another seemingly identical one was available for a cheaper price or free. That shouldn't be surprising. Price isn’t the only feature that matters to customers. For example, legality, packaging, and brand name might matter as well.
Your value proposition is the level of your product’s worth, usefulness, and practicality that you promise to prospects.
Do you solve people’s problems the fastest? Cheapest? Do you use sustainable, high-quality material that no one else does?
You already know your competitors’ pricing and ICPs’ challenges. Now, you have three options:
Your approach depends on the perception, differentiators, and quality of your brand and offer. Each comes with its own set of challenges:
Let’s look at streaming services Netflix and Disney+ again.
Netflix offers a vast and diverse collection of content, including a strong line-up of original programming. This variety positions Netflix as a hub for a wide array of entertainment choices.
The Disney+ value proposition is built on the extensive and iconic catalog of Disney, Pixar, Marvel, Star Wars, and National Geographic content. And, it appeals to a more family oriented audience.
Each service’s offer speaks to similar segments of the same target market with different value propositions.
So, how do their prices compare?
If we compare each provider's standard plan (with no ads), Netflix costs more.
Netflix standard (no ads) is $15.49 / month while Disney+ (no ads) is $10.99 / month.
But, if you compare Netflix to Disney+ Bundles which includes access to a wider range of content with Hulu and ESPN, Disney's price point is closer to Netflix when comparing their highest tier plans.
It comes back to value proposition. The higher the value your product delivers and the better you can communicate it, the higher price you can charge.
So, you need to hone why your customers should pay this amount if you want to reduce friction and increase sales.
We’ve covered a lot of scenarios. And like we said, change is the only constant.
In a world where pricing can make or break a business, having a flexible and collaborative way to gather pricing data and adjust your analysis is crucial.
While many companies have traditionally relied on spreadsheets, they fall short in capturing the complexity of decision making. Pricing is not just about crunching numbers. It's about understanding the nuances of multiple factors that come into play.
Read our guide to find out why we believe it’s time to think outside the spreadsheet
This is where innovative tools like Decipad are reshaping how individuals and teams interact and communicate with data.
Decipad is an interactive notebook where numbers, narrative, and visuals come together.
With Decipad, you can build models that are not only easy for everyone in your organization to comprehend but also adaptable in real-time with new information.
Whether you're considering add-ons, upgrades, or discounts, Decipad makes it easy to fine-tune your inputs and see how they impact your pricing strategy. This level of interactivity empowers you to make informed decisions quickly and confidently.
It goes beyond the conventional spreadsheet approach by helping teams convey an evidence-based narrative, where metrics are seamlessly integrated with context. There are no walls of numbers here:
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And, it enables you to present numbers in a more human way. For instance, you can showcase prospective customers the ROI they can expect from using your product. As we've stressed, pricing isn't just about a number. It's about effectively communicating the value you deliver.
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In a world defined by perpetual change, your pricing analysis should be equally dynamic.
So, present it in a way that turns complex information into a dynamic, relatable format that your whole team can understand.
To sum it all up, pricing is more than just a number. It's about crafting a narrative of the unique value and benefits your product brings.
Customers are not just paying for a product, they're investing in a story of value.
To kickstart your pricing journey, we've curated a few of the best templates and real-world examples on Decipad, all crafted by experts, valued customers, and entrepreneurs.
Your pricing story should be as adaptable and interactive as your business. To make this a reality, give Decipad a spin.
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