Competition based pricing requires a massive amount of research. You analyze here the pricing strategies of your competitors. You even get to familiarize yourself with the customer’s expectations as well. It provides the foundation to set your product’s or service’s pricing range.
Thus, if you’re also looking to implement competition based pricing, read this guide carefully. We have mentioned all the essential information regarding competition based pricing in this guide.
What is Competition Based Pricing?
Competition based pricing refers to a strategy under which the pricing of goods and services varies based on competitor’s pricing. It doesn’t have much relation with analyzing the customer’s paying capability or willingness; instead, it is solely based on the competitor’s actions. Competition based pricing has more focus on volume rather than profitability.
Competition based pricing is typically followed in eCommerce, where algorithms analyze the competitor’s activities and set their prices accordingly. Therefore, many retailers, including Amazon, change their product pricing multiple times a day.
Competition Based Pricing Definition
“Competition based pricing includes setting up your product or services pricing in respect to their competitors.”
It solely depends upon the competitors’ pricing, not any information regarding the customer value. The markup pricing in this case can go as high as possible.
How To Set up a Competition Based Pricing Strategy?
Competition based pricing is solely based on the research. You must figure out your competitor’s thought process behind selling their products and services at a certain price. We have mentioned a step-by-step process to establish a competition based pricing strategy successfully:
Identify the Competitors in Your Market
Primarily, you have to figure out your competitors in your field. You have to look for similar products in the market. To set up a competition based pricing strategy, you must do this standard research.
Once you figure out some of your competitors, you must group them according to their characteristics, tenure, and market share. You should select competitors that match your brand profile. This is how you will find your best-matched competitors.
Research Their Pricing and Positions Strategies
When you know all of your competitors, you are ready to do a competitive pricing analysis. You need to check out their pricing models, positioning strategies & geographical pricing. It will give you a map of current trends. Ensure that you have analyzed their pricing, packaging, kinds of tiers, and also the features they differentiate upon.
This process will let you know the pricing and positioning expectations of the customers in the market. Thus, you will select the best possible pricing for your products and services.
Average the Price of all Competitors
Pricing maps will surely give you an individual idea of what competitors are doing in the market. But you should also have aggregate data, which will help you calculate the average price of the competitor’s products and services.
This average will help you set up a benchmark to price your products and services. Therefore, you can set your product or service’s pricing better.
Choose Higher, Lower, or Matched Prices
Once you are done analyzing and evaluating the competitor’s pricing. It would help if you started focusing on where your products and services lie in the market.
We have mentioned some examples to set up your pricing to reflect your product or service’s status.
- Higher than average price: You can set your pricing higher when you want your product or service to be more premium than the rest of the market.
- Lower than average price: When you want a competitive edge over the competition by cutting some profit margin. It will help you acquire customers quickly.
- Matched Price: When you want to compete with the competitor in the same line.
No matter whether you’ve just entered the market or are trying to level up your current positions. Your pricing will make the customers perceive your brand manner. Always remember that strategies like “competition based pricing” don’t let your company achieve higher growth.
Competition Based Pricing Advantages and Disadvantages
We have mentioned various competition based pricing advantages and disadvantages here.
Competitor based pricing can easily be implemented even if you have only one or two competitors in your market. In almost all industries, competition based pricing research takes only a little relative effort.
You can easily tweak your pricing by analyzing the competitor’s activities. Always remember one thing: you should choose the best possible competitor. Only it will make your competition based pricing successful.
This form of pricing will never let you down. If you have a qualitative product, the right target audience, and a decent cost of production, then this method will never let you down in any way. It will keep you going ahead in the same way as your competitors.
In most industries, competition-based pricing often proved to be accurate. As millions of consumers are in the market, thus you can easily set your pricing based on the market price and market share. However, you can not do the same in the software industry.
Most companies register the maximum of their profits by bringing positive or negative changes in sales, production costs, and overhead. Thus, directly selecting your product or service pricing leads you to many missed profits.
As not all companies are the same. Most market experts suggest that you should work a little more if it helps you gain more profit and growth in the long run.
Following the Herd:
Competition based pricing makes you assume that your competitors have already done in-depth research regarding the targeted consumer. You will only copy your competitors here and may also lose many earning opportunities.
Competition based pricing will also take you into your comfort zone. Thus, you will need more time to analyze and evaluate your business in a detailed manner. You should have proper command over your business and its activities.
No Long-Term Approach:
Competition based pricing instantly helps you decide the best possible price. You can follow the basic principle of keeping the price lower to sell in the market. Lowering the price in the industry often leads companies to doubt quality.
Thus, competition based pricing doesn’t have any future. In the end, you must eliminate this narrow approach and look for long-term planning instead.
Competition Based Pricing Example
In this competition based pricing example, you can see that four companies are competing in a general way. We have taken a real-life example to understand the market scenario better.
You can see that companies A, B, and C are applying competition-based pricing, and their gain and loss have fluctuated a lot alongside one another. At the same time, company D has tried a more well-rounded approach and started with lower pricing. They grew gradually with time, which proved effective for them.
Competition based pricing is one of the safest methods to survive in the market. It will allow you to play a safer game and provide better financial results. We hope you like this guide and find all the relevant information you should know.
Frequently Asked Questions
What is competition based pricing definition?
Competition based pricing includes setting up your product or service pricing in respect to their competitors.
What is competition based pricing?
Competition based pricing refers to a strategy under which the pricing of goods and services varies based on competitor’s pricing. It doesn’t have much relation with analyzing the customer’s paying capability or willingness; instead, it is solely based on the competitor’s actions.
What is an example of competition based pricing?
An example of competition-based pricing is analyzing competitors’ prices and then setting a similar but slightly lower price for one’s products. Name two industries where competition-based pricing is significantly present. Competition-based pricing is common in the automobile and smartphone industries.
What is competition based pricing method and its types?
The three main types of competitive pricing are:
- Low price – When you set the prices lower than your competitors
- High price – When you set the prices higher than your competitors
- Matched price – When you align your prices with your competitors