Q&A: Pricing Strategy when Battling Goliath

Question:  What approaches to pricing should be taken when going into a market with a thoroughly entrenched incumbent that has the majority of existing market share?
Answer:  Pricing is just one part of the overall strategy you need to adopt.  Here is the approach I would most likely attempt.
First, realize the incumbent has a much better brand name and reputation. They get value for their name.  Just accept that.
Second, and most importantly, choose a small piece of the market segment where you can satisfy the market better than the incumbent.  You likely built your product because it is better than your competitors for at least some buyers.  Find them, focus on them.
Then, as always, use value-based pricing.  You need to estimate or determine the value that market segment places on your product relative to the incumbent.  To do this, document the differentiation.  How are you better?  How is the incumbent better?  How much do you think buyers in that market segment value each of those differences?  If you’re familiar with VBP, none of this is new to you.  Don’t forget, the incumbent probably has a better brand name, so they get some “credit” in your calculations for that.
As you build traction in your best market segment, you can start to go after other segments.  If you expect to win or even carve out a small profitable business for yourself, it will be done in market segments, not by battling Goliath in a broad market.
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