There are different types of pricing strategies that a business can implement for improving the sales and revenue figures as well as beating the fierce competition. One such strategy is the competition based pricing which is built on the foundation of strong research.
When a business studies and analyses its top competitors in the market they get an idea of how the competitor’s price their products and what impact it creates on the consumer’s expectations. It offers a foundation on which a business can set the prices for its products and services.
What is Competition Based Pricing?
As per the competition based pricing definition, it is the practice of pricing goods or services based on what the competitors are charging for similar products. An effective pricing strategy is crucial to maintain and grow the profit margins. It helps in growing the market share in a highly competitive market. We can see competition based pricing in several industries such as retail and e-commerce. It enables the companies to set the prices strategically below, above, or the same as their competitors.
There are effective tools and software in the market based on advanced technology which help in monitoring the competitor’s pricing, product design, marketing strategies, and other vital data. Analysis of the data offers significant insight which further helps in developing the right price points for the product or service.
Unlike cost-plus pricing, the competition based pricing strategy doesn’t take into account the internal production cost. It only considers competitor pricing and customer demand for setting the optimum final price.
Advantages of Competition Based Pricing
Every pricing strategy has its merits and demerits. Here’s a look at the competition based pricing pros and cons:
One of the major benefits of competition based pricing is that it is a comparatively simple strategy. Companies can monitor and evaluate the pricing of the similar products in the market for determining their prices. If they find their product to be superior, they can set higher prices than competitors and market the products heavily. If they opt for a loss leader pricing strategy, they might offer a basic product accessible to the masses.
2. Quick Entry into Market
It has been observed that companies that use competition based pricing can enter the market easily and quickly. Newer brands can benefit substantially as they can eliminate the need for research and enter the market strategically by benefitting from the work done by their competitors.
3. Increased Revenue
Competition based pricing strategies such as loss leader pricing or price matching can help the business claim its market share. This generation of tech savvy buyers performs price comparisons both online and in-store for grabbing the best deal. The strategy can help in effectively maintaining the consumers and attracting them so that they don’t switch to the competitors.
4. Improved profit Margin
When done correctly, the competitive based pricing method helps in boosting the profit margin. If the business wishes to drop the price for a price match, the production cost should also be taken into consideration. Tools and software for competitor monitoring can come in handy for getting insight within seconds.
1. Lesser Margins
It is obvious that loss leader and price matching strategy will leave only slimmer margins. In such situations, eventually, the companies will fail to recover the cost of production. Even the customer expectations get dragged down and the business finds it challenging to operate.
2. Lack of Insight
If a business solely relies on its competitors for deciding its own prices, it will only be as accurate as the competitors are. Using competition based pricing assumes that the competitors are doing their due diligence.
Types of Competition Based Pricing
There are three types of pricing strategy based on competition:
1. Above the Competition
In this type of competition-based pricing, the business sets the price above the market value demonstrating that the product/ service is superior to the similar products from competitors. It means a significant investment in the marketing strategy for positioning the brand as premium and luxury. It can also be done by adding features or offering extended warranties favorable to customers.
2. Same as the Competition
It is a common competition based pricing tactic used by companies for preventing buyers from switching to the competitors for a better deal. With this type of pricing method, the company assures to provide the products at the same price as the competitors. Effective branding and marketing strategies enable a company to stay competitive yet differentiate itself.
3. Below the Competition
The competitive based pricing method works by setting the prices of the product below the competitor’s selling price. It is also known as loss-leader pricing which helps in growing the market share and revenue in a short span of time. Though marketing your business as a lowest cost alternative is an effective pricing strategy, in the long run, it will affect the profitability and impact the perceived value of the brand.
Examples of Competition- based Pricing
The competitive based pricing example is as follows:
1. Premium Pricing
A company selling a laptop decides to price it above the competitor’s prices. To attract customers and set itself apart, it offers a premium product with a sleek design and added features. As the competitors don’t offer such perks, the customers will choose the premium laptop.
2. Pricing Below the Competitors
A grocery store launches its own cereal brand and decides to price the brand below the competitors. They aim to make more sales assuming that the buyers will pick their low-cost cereal over other options on the counter.
3. Price Match with Competitors
There are two can companies established in the market. Both of them offer the same service and the market force has made them charge the same for the trips. It helps them from losing their customers to the competitor.
These are simple yet practical competition based pricing example demonstrating how different types of pricing strategies work.
Every business must evaluate any pricing strategy and its pros and cons. However, competition based pricing can be a great addition to a business’s pricing model.
How Competition Based Pricing is Helpful
Now, let us understand how competition-based pricing can make a difference in your business. Every business owner wants to grow and thrive, and it is obvious that you need to do something different to change the existing course of growth.
Market Relevance: Online businesses operate in a fast-paced digital ecosystem where customer behaviors and market dynamics can change rapidly. Competition-based pricing ensures that your prices remain relevant and competitive, resonating with your target audience.
Adaptability: Online markets are characterized by rapid changes and intense competition. Competition-based pricing allows businesses to adapt swiftly to market fluctuations and stay ahead of competitors’ moves.
Transparency: Online consumers have easy access to information, including competitor prices. By aligning your prices with prevailing market rates, you foster transparency and build trust with customers.
Competitive Edge: By closely monitoring and responding to competitor pricing strategies, online businesses can gain a competitive edge. Strategic pricing adjustments can attract price-sensitive customers and sway their purchasing decisions.
Effective Positioning: Competition-based pricing enables online businesses to position themselves strategically in the market. Whether you aim to be the low-cost leader or offer premium value, your pricing approach can reinforce your brand positioning.
Seize Your Competitive Edge With WebDataGuru
In the ever-evolving landscape of business, the art of pricing holds the key to unlocking unparalleled success. Competition-based pricing emerges as a dynamic and strategic approach that empowers online businesses to not only survive but thrive amidst fierce digital competition. By leveraging the insights gained from competitors and aligning prices with prevailing market rates, businesses can forge a path of resilience, adaptability, and customer-centricity.
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