Analyzing competitor pricing enables business leaders to optimize pricing strategies and stay competitive in their market. Vendors use a competitive pricing strategy when several other businesses sell the same product and there is little to distinguish one vendor from another. A market leader will generally set the price for the product and other vendors will usually have no option but to follow suit in order to remain competitive. Vendors will either match the pricing of the market leader or set prices within a comparable range.
If you have your own brand with unique products, you would like to position your prices differently. In SYMSON you can take into account competitor prices when positioning your product. I.e. to not be more than 30% more expensive (or cheaper) than the top competitor. At this stage of a consumers search, they have multiple options of where to click, and their decision process will be based on prior experiences, or where they are on their buying journey. For example, they may have shopped with one of the retailers displayed previously, and had a good experience, and therefore this is the retailer they click through to again.
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By always ensuring your prices remain market relevant, shoppers will be less likely to turn to your competitors and more likely to buy your business’ goods or services. Selling a well-established product at a similar price to competitors is an option for small retailers who want to draw customers to their businesses. Keeping customers there, however, often means distinguishing themselves on bases other than price.
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Criticisms against a Competitive Based or Competition Based Pricing approach can be that you are using pricing that is not your own – it’s your competitors. Basing your pricing on their pricing could be seen as confirming both their price and their leadership in the market. It can be very difficult to reconcile a Competition Based Pricing approach if you are trying to position yourself as new or innovative. Setting a premium price above market value can be effective if the company demonstrates that the product or service is somehow superior to the competition.
With competitive pricing, you can tailor strategies to financial objectives. Established companies can leverage promotional pricing to boost volume and revenue. Businesses that are intent on increasing sales on core and ancillary products can leverage captive pricing. The most common ways businesses raise their profits is to increase sales, decrease production costs, or lower overheads.
High price
They might offer an extended window for returns or a dedicated customer service rep to answer questions and resolve issues after purchase. This chart is a snapshot in time, and can be used to assess your relative position, across your whole inventory, to the cheapest, average and highest competitor prices in the market. The example shown, indicates that for 57% of this retailers’ inventory, they’re the most expensive i.e. no one else displays prices at the same level or above them.
- Relying on a competitive pricing strategy may be risky if volume cannot be maintained or if costs suddenly rise.
- As we said at the start, this is just one of the possible pricing strategies and it’s worth finding out about all the options so you can be confident you are making an informed decision.
- Pricing your goods or services competitively can also come with inherent disadvantages and risks.
- Competition-based pricing is a pricing model commonly used in several industries, including retail and e-commerce.
At times, loss leader prices cannot be officially published as a minimum advertised price has been set by the manufacturer. This can be a very effective way to ensure that the company sets the best price for its product or service. Different customer groups are willing to pay different prices for similar products.
Competitive pricing disadvantages
After researching competitors’ pricing, you’re ready to determine where your product or service fits into the market. Remember, pricing is a process that eliminates as much doubt as possible for a key stakeholder to make a profit-maximizing decision. Think of pricing as a game of darts where you’re trying to hit a bullseye (the perfect price), but there’s all that extra space on the board. Data eliminates that space as much as possible, with information about your competitor’s positions in the market, to get as focused on the target as possible.
Unlike more complex pricing strategies, competitor-based pricing is relatively simple. Companies review pricing for similar products and services in the market and decide where they should sit relative to these. If their product is of superior quality, they may set their price slightly higher than competitors and market these features heavily. If they offer a ‘basic’ option accessible to more potential customers, they may opt for a loss leader pricing strategy.
Advantages and Benefits of Competitive Pricing
That’s why online stores track each others’ prices and try to remain competitive. What’s more, you must be able to respond immediately to competitors’ price changes. Also, that means they all keep track of each other’s prices to make sure their own offers are competitive. The main issue with competitive pricing is that it competitive price meaning can lead to missed opportunities as it can create a situation whereby all the players in a given market are blindly using the same pricing. This results in a static market and can also create a price war or a race to the bottom. In addition, it can help companies assess how much price changes will impact their business.
Much of your brand’s perception will hinge on what you’re selling—and for how much you’re selling it. If you’re selling paper, then a lower price may reign supreme, since there isn’t much differentiation between vendors in that industry. For this reason, price competitiveness is very much subjective from one retailer to the next, and is based on the competitive position they’re wanting to achieve, and whether or not that is being realised.
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This could mean a more significant investment in marketing to position the brand as ‘luxury’, added features, or favorable customer terms like extended warranties. Define the logic in the SYMSON platform to get the prices of your competitors. SYMSON can get all the pricing data from Google Shopping or specific imports or website scrapers can be used to get the prices of your competitors. We recommend taking the following steps to implement a competitor-based pricing strategy in SYMSON. Competitor-based pricing is an excellent tool for understanding the current market and general customer expectations of pricing, but it doesn’t look at the whole picture. SaaS and subscription companies are more successful with a well-rounded strategy that includes competitor analysis, benchmarking, and in-depth research into your company’s metrics.
It is likely that if this particular retailer has been selling well historically at the market average price, they’re now leaving money on the table, and have products that are priced too cheaply. They should now increase prices that have drifted below from the market average price. In saturated industries like retail, competitive pricing can be fairly accurate. After all, for most consumer products, there are millions of customers and enough data to move pricing closer towards a methodology based on market price and market share. Competitor based pricing is commonly used to test product pricing, especially if you’re new to the market.
Being the lowest cost option in a market is one of the strategic positions you can take (see Bowman’s Strategy Clock for others) using Competitive Based Pricing. When you’re in this position you’re providing the product or service at a price that is perhaps even below cost. In well-established markets, customers are familiar with price points and have solid expectations of value. Using competitor-based pricing means customers can immediately judge value based on how prices differ between brands. If you are a company struggling with keeping up with your competitors it is valuable to take a deeper dive into their pricing strategy.
Finally, it provides a way for companies to track their progress over time and make necessary adjustments to stay ahead of the competition. Repeat this process every quarter to see whether your products are overpriced or too cheap. For example specialist stores, online marketplaces, or local traders who could eat into your profits. But you also need to consider your indirect competitors too and how much weight you should put into their pricing when developing your own strategy. Understanding your pricing, and where it puts you against the competition, is essential when it comes to increasing market share and getting one over the competition.
- When launching a new product or service, they want to appeal to target customers by offering the price that people are already accustomed to.
- There’s a lot of research and interpretation of companies, cost, and industry breakdown to understand how your competitors are pricing their products.
- We understand that competitive pricing seems confusing, yet it meets the needs of online retailers.
- Your post-purchase confirmation email should ask questions like, “Why did you purchase this product?
When a company is unable to anticipate competitor price changes or is not equipped to make corresponding changes in a timely fashion, a retailer may offer to match advertised competitor prices. This allows the retailer to maintain a competitive price point for those who become aware of the competitor’s offer without having to officially change the price within the retailer’s point of sale system. Similarly, if your competitor is selling a $50 item and yours is $75, people may continue paying your higher price if quality is superior.
This provides an idea of how the company’s prices compare to those of its competitors in different market segments. If you set prices equal to your competitors’ prices, particularly in e-commerce, your business may blend in with the crowd. Unless you have a strong marketing campaign or a recognizable brand, consumers may not differentiate your product from identical items in the marketplace.