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How to Detect And Use Market Segments by Robert C. Brenner, MSEE, MSSM ©2008 Brenner Information Group Price analysis can be fun and profitable. Let's say you want to study the market for VA services in the United States. You conduct research capturing all of the billing rates you can find. Then you put these raw numbers on a spreadsheet and sort the prices in ascending order. Next you determine how many price points there are for each specific hourly rate in your study. From this you generate a chart comparing the number of price points at each billing rate. Then study the price distribution to identify price points where most of your competitors are operating. For example, below you'll find a current chart of VA billing rates in the United States. It's based on our Real Prices Confidential database. There are 2,621 prices that determine the shape of the distribution chart below.  Apr08.jpg)
By studying this chart, you can see a broad distribution of prices across the $8-$300 billing rate range.
However two areas of the chart show concentrations of companies that charge specific rates. There are a
large number of companies charging $20 an hour, and there is a grouping of companies charging between
$30 and $50 an hour. These groupings are particular areas of interest.
The average of all 2,621 prices is $31.64 (near the beginning of the last group). The midpoint of all the
billing rates that we found is $30 an hour. Essentially, half of the prices are below this, and half are
above this midpoint.
To best analyze all of this pricing data, you need to dig deeper into what services these 2,621 VAs are
actually providing. Some of the VAs in this large data set are doing secretarial work. Some are creating
websites, and others are involved in database design. You need a subset of this large data set organized by
service. Then you can compare the billing rates on an "apples-with-apples" basis.
When analyzing competitor prices, be certain that the competitors are proving the same service.
For example, suppose your company provides admin support services. Collect all the prices charged by VAs
who provide administrative support services. Then generate a price distribution chart using these rates.
Now when you study your chart, you'll be analyzing similar service providers. And the groupings of billing
rates are much more meaningful.
Segmented price analysis using price distribution charts can be a valuable tool for setting price. Every
three months we conduct pricing research for our sister company. This company provides network engineering
and computer repair services. We need to know what the competition is doing so we can remain competitive in
the marketplace. We want to see who has left the market and which new competitors have entered the market.
Once we develop our price distribution chart, we study the results to identify the competitor groups. This
helps us determine the market we are in and the market we want to target.
You can do the same. Like our firm, you can also compare price distribution charts from past pricing research.
Use competitor pricing history to identify trends. The idea is to be pro-active in your pricing and not
a "me too" competitor. If your competition seems to be ratcheting their prices lower, they may see something
you haven't noticed. They may also be pricing themselves out of profitability. Don't follow their price
reductions without a clear understanding of the marketplace. If you follow them with "loss-leader-only"
pricing, your ability to survive as a business owner becomes threatened. As margins evaporate, so does your
ability to remain profitable.
Do your homework. Watch competitor price moves carefully. This will let you know when customer buying habits
are changing, and profitable service is becoming scarce. In this case consider offering new or different
services. You can tell which services are likely the most profitable by collecting pricing information
(through individual research or by subscribing to a pricing database service such as our Real Prices
Confidential) and watching what competitors are doing.
For example, if you are providing web design service, determine what competitors are charging per hour. If
offshore competition is biting at your heels, what are they charging? How can you compete? By knowing
competitor prices in your country and internationally, you can better compete in the markets that you select.
Price distribution charts can be invaluable in giving you pricing power that others won't have. You can
maximize your profit potential by becoming street smart in the world of pricing. Give your business an edge
over the competition. Use price distribution charts to monitor and set rates intelligently.
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©Copyright 2008, Brenner Information Group, All rights reserved.
revised on April 26, 2008
