The title of this article might also be rephrased as this question: When you set prices, how much do the competitor’s prices matter?
What is the Difference Between a Price Leader and Price Follower?
- A price leader is typically the first to move prices.
- A price follower tends to change prices after a competitor does.
Let’s look at more differences between the two.
Price Leaders
Price Leaders tend to drive prices higher. They add more value, differentiate their products, segment their markets, and strive to win at higher prices. Apple is certainly a price leader. They drove the prices of cell phones over $1,000. I’m sure they pay attention to the prices of Android phones, but that doesn’t stop them.
Price Followers
Price followers rely on price to win. They may be the first to lower prices, but probably because they are reacting to a bad quarter of sales. They are not strategic. They may be using value-based pricing, but they aren’t driving value. Price followers often copy competitors’ products or features.
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Here’s what I love about price leaders: They care about VALUE. They have to. They are looking for ways to add value to those buyers who are willing to pay more if only they could get more.
What kind of company is yours? Are you always competing on price? Trying to catch up to the competition? Then you’re a price follower. Are you innovating in the marketplace? Enjoying higher prices than your competitors? Delivering unique value to your buyers? Then you are probably a price leader.
I didn’t write this blog as an advertisement, but as I think about it, being a price leader is extremely similar to being a Value-Based Business. We have an online course created to teach companies what it means to be a Value-Based Business. It will teach you how your buyers perceive value and how your buyers’ journey should drive the decisions and tactics of product managers, marketers and sales.
An Innovation Mindset Makes All the Difference
The real difference between price leaders and price followers is their mindset. Price leaders drive innovation. Price followers copy innovation. Price leaders create new types of value for their buyers. Price followers try to keep up.
Which type of company do you want to be?
