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August 15, 2023
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Richard and Amy ran a web design business called Anorak Cat. When they first sat down with Robin, their prices had barely moved in years: £400 per website, £8 per month for hosting. They had looked at what competitors were charging and concluded their rates were fair. They were right. The market was full of agencies at exactly the same price.
That was the problem.
Pricing based on what the market charges feels rational. It feels safe. But for a service business, it is one of the most reliable ways to build something that never quite earns what it should. This article explains what competition-based pricing is, why it works in some industries, and why it is quietly eroding the margins of most service businesses that use it.
Competition-based pricing is a strategy where a business sets its prices based on what competitors are currently charging. Also called competitive pricing or competitor-based pricing, it works by benchmarking the market rate and positioning your own price at, above, or below that figure. The strategy makes no direct reference to the cost of delivery or the value created for the client. It looks outward, not inward.
The approach operates in three main ways. Price parity means matching the market exactly, common in industries where products are identical. Penetration pricing means going below the market rate to capture share quickly, typically used at launch. Premium competitive positioning means sitting slightly above the market rate to signal quality while remaining within the competitive band. Each version has the same underlying logic: let the market set the range, then pick a position within it.
This makes sense in commodity markets. A litre of unleaded petrol is a litre of unleaded petrol. An economy seat from London to Edinburgh is broadly the same on every airline. When the product is standardised, price is one of the few genuine differentiators available and benchmarking competitors is a reasonable input to your pricing decision. The problem starts when service businesses apply the same logic to their expertise.
A competition price is the rate set by using the prevailing market rate as the primary reference point. For a service business, it typically looks like this: a freelance designer checks what others charge on job boards or in online communities, finds the range, and sets their rate in the middle. A coach checks what other coaches charge for a six-week programme, finds most are between £1,500 and £2,500, and prices their programme at £1,800. Neither has stopped to ask what their work is actually worth to the client. They have looked at the herd and joined it.
The result is what Robin Waite calls the commodity trap: you train the market to evaluate you on price, and you attract clients who are specifically shopping on price. When a cheaper competitor arrives, those clients leave. You have no pricing power because you chose never to build any.
The clearest examples come from industries where the product is standardised. Supermarkets track each other's prices in real time and adjust continuously. Petrol stations on the same roundabout rarely differ by more than a few pence per litre. Airlines use dynamic pricing algorithms that monitor rival fares and update them throughout the day. In all these cases, the product is functionally identical and price is a genuine differentiator. Competition-based pricing is the logical response.
The service business version looks different. Richard and Amy Stevens ran Anorak Cat, a web design agency, charging £400 per website and £8 per month for hosting. The rates were set entirely by looking at competitors. Robin helped them raise website prices to £800 and hosting to between £79 and £179 per month. They introduced a Default Diary, monthly client reports, and a money-back service level agreement. Within seven months they had doubled their client base and trebled their monthly turnover.
Nothing about the underlying service changed. What changed was the decision to stop treating web design as a commodity and to price it instead on the outcome it delivered. That is the practical difference between competition-based pricing and value-based pricing: one borrows a number from the market, the other derives a number from the client.
Competition-based pricing does not just limit revenue. It actively shapes the type of clients you attract, the type of work you do, and the perception your market has of your business.
When competitors lower prices through cheaper overheads, new market entrants, or economic pressure, the incentive to follow is intense. The result is a slow contraction of margins that feels like the market moving, not a strategic error. The businesses without premium positioning feel this most. When prices go down, there is rarely a mechanism to bring them back up without effort and discomfort. Robin saw this during the 2012 recession: redundancies flooded the market with web design freelancers competing purely on price, and project fees fell as clients cut budgets. The businesses without recurring revenue or premium positioning felt it hardest.
Price-sensitive clients are not just lower budget. They tend to be higher maintenance. A client who chose you primarily because you were the cheapest option has no particular loyalty to you. Robin describes the outcome of raising his agency's hosting fees five-fold in 2009: forty percent of clients left, but monthly hosting revenue rose to two and a half times the previous figure. The clients who stayed were worth keeping. That is not a coincidence. The ones who left took many of their problems with them.
Once you have priced at market rate for long enough, raising prices becomes a project. Existing clients expect the rate they signed up at. New clients find you through channels that position you as a mid-market option. Your own pricing confidence adjusts to the number you have been charging, which makes the next figure feel large even when the business maths is simple. One of Robin's clients, a hair salon owner, had been charging £25 for a cut and colour for years. A customer told her the prices were far too cheap and that she would normally pay over £100 for what was being done. The owner's response: "But that's what I'd pay for it!" She had anchored her pricing to her own relationship with money. That is the lock-in in action.
Three pricing models dominate strategy conversations for service businesses. Understanding the difference makes the choice clearer.
For most coaches and service businesses, value-based pricing is the right model. The barrier is not understanding it intellectually. The barrier is having enough clarity on the outcome you deliver to price it with conviction.
Value-based pricing starts with a different question. Instead of asking what competitors are charging, it asks: what is the Dream Outcome for this client, and what is that outcome worth to them?
Robin defines the Dream Outcome as the specific, measurable result a client achieves by working with you. Not a description of what you do, but a description of what becomes possible for them. A business coach does not deliver coaching sessions. A business coach delivers a client who has doubled their revenue and works half the hours they used to. Those are different conversations, and they command different prices.
Once the Dream Outcome is defined, pricing becomes more straightforward. If a client's business currently turns over £120,000 a year and coaching typically produces a 25 to 50 percent uplift in year one, the Dream Outcome is worth £30,000 to £60,000 in additional revenue. Pricing the engagement at £10,000 to £15,000 is now a 10x ROI conversation, not a comparison to what another coach charges.
This is the foundation of Robin's business coaching approach: productise the service around a defined outcome, set a fixed fee that reflects that outcome, and commit to it. The three to five hero products framework makes this practical: you are not selling bespoke time, you are selling a defined programme with a defined result. For coaches and consultants building a practice, productisation is the structural escape from the competitor pricing trap. Understanding your money story is often the first step: many coaches underprice not because the maths is wrong but because their beliefs about money make a higher number feel impossible to say.
This is worth stating plainly, because the coaching and consulting industry has been particularly prone to importing pricing logic from markets where it does not apply.
Competition-based pricing is not for coaches. Not for consultants. Not for freelancers building a practice based on expertise. Not for service businesses whose value is in their methodology, results, or transformation. If you are in any of these categories and pricing based on what others in your space charge, you are competing on a dimension that has nothing to do with the quality of what you deliver.
It is also not for any business trying to attract clients on the basis of trust and transformation rather than transaction. When a prospect is deciding who to work with for something that matters to them, they are not running a price comparison. They are looking for evidence that the person in front of them can deliver. Price, in that context, is a confidence signal. A lower price sends a signal too, and it is rarely the one you intend.
The businesses that escape the competition-based pricing trap fastest are the ones that accept this early: you are not a commodity, and pricing yourself like one is the most expensive mistake a service business can make. To find out where your pricing mindset is holding your business back, take the Fearless Business Quiz.
Competition-based pricing is a strategy where a business sets its prices by benchmarking what competitors are currently charging. Rather than calculating value delivered or cost of delivery, the business looks at the prevailing market rate and positions its own price at, above, or below that figure. It is most effective in commodity markets where products are identical and least effective in service businesses where the offer is expertise-driven.
Petrol stations on the same road typically match prices within a few pence per litre. Airlines adjust fares dynamically based on real-time competitor data. For service businesses, a common example is a coach or freelancer checking what others in their category charge and pricing to match, without reference to the value they actually deliver or the outcome the client receives.
The four most commonly referenced pricing strategies are: competition-based pricing (set by competitor benchmarks), value-based pricing (set by the client's perceived or actual gain), cost-based pricing (set at cost of delivery plus a margin), and dynamic pricing (variable rates adjusted in real time based on demand). For service businesses, value-based pricing typically produces the strongest margins and the best client quality.
For service businesses, it is usually damaging. Pricing based on competitor benchmarks commoditises the offer and attracts price-sensitive clients with no particular loyalty. When a cheaper competitor appears, those clients leave. The alternative is value-based pricing: charge for the outcome the client receives, not the market rate for the category. Robin Waite's clients who make the switch typically see significant improvement in both margin and client quality within the first year.
Start by defining your Dream Outcome: the specific, measurable result a client achieves by working with you. Then productise your service into fixed-fee packages built around that outcome. When your offer has a clear deliverable and a defined result, the comparison to competitors becomes irrelevant. Clients who want that outcome will pay for it. Those who are primarily shopping on price alone were never the right fit.
