Substitute Pricing Template

The Substitute Pricing Framework is a strategic tool designed to help businesses understand the alternatives their customers might consider instead of their product.

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It’s not just about comparing your product with direct competitors; it’s about exploring all possible options users might turn to when solving the problem your product addresses. By identifying these substitutes, you gain deeper insights into your customers' needs, values, and preferences.

For example:

Uber competes not just with other ride hailing apps like Ola but also with public transport, owned vehicles, or even bicycles.

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Netflix: Faces substitutes like cable TV, YouTube, and DVDs—not just other streaming platforms.

Why does it matter?

Understanding substitute pricing helps businesses:

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1. Identify key value drivers: Learn what aspects of your product—convenience, affordability, or unique features—customers value most.

2. Spot opportunities for differentiation: Determine where your product excels compared to substitutes and leverage that to refine your messaging or features.

3. Position pricing strategically: Use insights from substitutes to determine whether your product is premium, budget-friendly, or appeals to a mix of customers.

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By focusing on substitutes, this framework enables businesses to set prices that align with customer expectations while staying competitive in the market.

How to use the substitute pricing framework

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A. Map out substitutes: Use the framework to identify alternatives your users might choose. Think beyond direct competitors to include options outside your category.

B. Evaluate substitutes: Analyse each substitute based on factors like flexibility, effort, and cost to see where your product stands out.

C. Position your product: Based on your analysis, determine whether your product is best positioned as a premium, budget-friendly, or hybrid solution.

D. Iterate and test: Use your findings to run pricing experiments and refine your strategy over time.