Product Pricing: Why Comparing Apples to Oranges Works (#1)

When starting a business, pricing is one of the trickiest decisions you’ll face. It’s tempting to follow what competitors are doing and set your prices similarly, especially when you’re just getting started. Many of the entrepreneurs and students I work with often say one of two things: “We have no competitor,” or “Our competitors don’t do what we do.”

But let’s face it, that’s a narrow view. If you compare every little feature of your product with others, then sure, you might think your competitors don’t measure up. However, real competitor analysis doesn’t work like that. There are always alternatives. And it’s important to consider what your customers see as substitutes.

This concept isn’t new. If you’ve ever taken a business course, you’ve likely heard of Porter’s Five Forces, which show that substitutes and alternatives are always part of the equation. A classic example used in many marketing classes, including my own, is air travel. You might think other airlines are the only competition, but from the customer’s perspective, alternatives like trains, buses, cars, or even walking can be considered when making a travel decision.

So, how does this relate to pricing?

The more unique your product is, the more room you have to set a price. Let’s look at a simple example: selling apples. If you sell apples in a market full of other apples, customers will compare your apples to others. If you sell them in a fruit market, your apples will be compared to a wider range of fruits. But if you sell apples in a market full of oranges, people will now be comparing apples to oranges—a comparison that doesn’t quite work. When a comparison doesn’t work, customers have no choice but to evaluate your product’s price and its value based on its own merits, since they can’t easily make a side-by-side comparison with a direct alternative.

This is the base idea behind pricing your product compared to others. Customers evaluate prices based on the alternatives available to them. The fewer direct comparisons they can make, the more they’ll judge the price based on broader categories or even entirely different products.

For many products, especially in the SaaS industry, this comparison works on multiple levels. Let’s take an image generation app as an example. It’s a web app, so it gets compared to other web apps. But it’s also a SaaS product, which gets compared to other software. If your pricing is out of sync with these comparisons, customers may see your product as overpriced, even if it offers more value.

The lesson here is simple: when setting your price, think about the alternatives your customers will consider. The more you can make them compare “apples to oranges,” the more freedom you’ll have in your pricing decisions.

Read the next article in the series:

Product Abstraction and the Pricing Puzzle (#2)

Understanding Product Abstraction (#3)

Creating New Product Abstraction Layers (#4)

#productpricing #pricingstrategy #marketing #competitivepricing