There are two main ways companies compete in a market. By price or by value. Either you increase your value and thus, are able to charge the same or more than your competition and win customers. Or you lower your prices, cut  costs, improve inefficiencies and beat your competition by offering the same solution for less.

New markets start on value. A company solves a new problem or solves an old problem a completely new way (think Ford, Apple, Twitter). No one cares if they spend more to use the service or buy the product, the value is so high it really doesn’t matter what the price is. At this point pricing usually comes down to a guess by the company or some perception of the new value, also a guess.

Then the competition starts. Other companies come in, provide the same value as that first company but cheaper. They might provide some new value here or there but the main focus is to copy and cut pricing. This turns the whole market into a pricing war with little to no innovation.

And finally, someone innovates again. The problem is solved yet again, new value is provided, pricing is meaningless. It’s okay to compete at any stage of this cycle. If you can provide a service for cheaper, go for it. If you can add value, do that. The question is, do you know which one you are? They are two very different mentalities and two very different strategies. You can’t do both.

An easy litmus test is to ask yourself, “Do I/ Can I  provide 100 times more value than my competitor?” If you do, then go crazy on value. If not, focus on your pricing as you wont win on value.