How to create a competitive pricing strategy from scratch
If you study the prices of goods from competitors and based on them change prices in your own store, you use the competitive pricing strategy, the main element of the dynamic pricing system.
Why you need to monitor competitors
According to a Forrester Consulting study, 81% of shoppers compare the prices of several stores to find the best deal. This is due to the publicity of prices for online stores. The optimal price of the product significantly increases the likelihood of buying it in your store.
Determine the quality of data
As part of a study of retailers from six countries, we identified such indicators of data quality:
- Depth of matching. Accounting for color, product characteristics, and other parameters that are not on the main product card.
- Percentage of errors. When products are compared automatically and then checked manually, the number of errors is reduced.
- Percentage of prices found. If a competitor does not have a product or a problem on the site, prices are not displayed.
- The freshness of data. Data should be collected two hours before the revaluation, otherwise, they will decrease their value.
- Data delivery time. The optimal time for data delivery after collection to the store’s ERP system is 20-30 minutes.
What to analyze
Monitoring competitor data is the first step in introducing competitive pricing.
The second step is their analysis and decision making. Need to research:
- Price index. The most important indicator for a competitive pricing strategy, which displays the price positioning of your store in comparison with competitors, and helps to understand which of them affects sales more than others. Thanks to the study of the price index, you will understand which products can be sold more expensively without loss, and which ones should be reduced in price.
- Promotion activities of competitors. In the same study by Forrester Consulting, it is indicated that at least a third of buyers are trying to find promotions and discounts before purchasing a product. It is important to constantly monitor what shares competitors hold in order to optimize their promotional offers and prices.
- Availability of goods. If you see competitors running out of goods, make a decision according to your pricing tactics.
Internal company data also affects competitive pricing. You know the cost of your product, the desired margin, and the planned sales. Use this data to better analyze your pricing performance.