How To Use Competitive Pricing Analysis for Retail Business in 2022?

January 7, 20220

When your market is abundant in supply, maintaining a favorable position within it takes extra effort. Competitive pricing can help companies overcome this challenge, offering a coherent growth plan for every retailer.

What is ‘Competitive Pricing’

Competitive pricing aka competitor-based pricing is a retail pricing strategy that considers competitive prices, promotions, and inventory data to set retailer’s prices. It makes a part of the dynamic pricing. According to retailers’ business goals, such prices can be equal, lower, or higher than the competitors’ ones.

This approach is very popular in markets with a high level of competition, e.g. electronics, toys, etc. where retailers sell similar products. In the case of proper usage, it allows a retailer to increase its profits and outcompete rivals. The reason? Most buyers nowadays browse many stores in order to find the optimal price, a task that is easy to accomplish as long as the prices of the online stores are publicly available.

Let’s assume a retailer decides to use competitive pricing as a part of its pricing strategy. Here is how such a competitive pricing strategy example might look like:

“During the second quarter, we’re testing a new approach so all XYZ brand TVs should be sold using competitive pricing to increase turnover and margin. The prices should consider competitive prices, markdowns, and promos.”

After category or pricing managers get such a task, they start to divide the TV inventory by segments to define which products are more profitable and help achieve margin goals, and which are cheap, yet popular so they might apply other tactics to increase their turnover.

Now they can set pricing rules for each segment. Here is how this competitive pricing example would look like on a segment level:

  • Popular and cheap TVs → In the case of rival shops decreasing their prices for this segment, we will set our prices 1% cheaper.
  • Margin generating TVs → To achieve our margin goal we’re going to test price elasticity for this segment before setting a pricing strategy. We’ll set our prices 0.5-1-1.5-2-2.5%-… higher than competitors do until sales drop. Then we’ll stick to the most profitable percentage.
  • Other TV’s → We are keeping prices equal to the market equilibrium level.

Competitive pricing strategies

To determine whether or not competitive pricing may be beneficial to your pricing strategy, it is important to analyze your product life cycle. If your product is the only one being developed on the market, naturally there is no use in focusing on competitive pricing strategies. On the other hand, when you have created a complete product line ready to enter a saturated market, you should consider setting your prices in line with competitors’ pricing. There are three popular approaches to competitive pricing:

  • Setting a higher price compared to market competitors. Higher prices imply that your product has unique features compared to competitors, or that purchasing products from your company have a clear advantage compared to others. You need to justify higher pricing by bringing extra features to the table, for instance, special customer service, cheaper or faster delivery, extended warranty period, etc.
  • Charging a comparatively lower price for your product(s). The success of this strategy depends on whether you have enough resources to maintain production capacity and final product quality without boosting production costs. This type of pricing strategy runs the risk of your profit margins dropping, so it is crucial that competitors’ pricing analysis is always up-to-date. It is important to reduce production costs without ever compromising product quality. It will help to ensure that you have sufficient cash flow regardless of the price decrease.
  • Setting a similar price to competitors. This can diminish the perceived uniqueness of your product compared to others on the market, but on the other hand, this approach allows you to emphasize the added benefits of your product or brand. Using this strategy, when you offer a product or service with extra features for the same price, you have a much bigger chance to stand out on the market.

As you can see, this is a challenge retailers face.

To implement such competitive pricing strategies, they can use spreadsheets and a manual workforce. This approach can be implemented with ease yet hides enormous dangers. Manual workforce and tools with low intelligence produce mistakes.

There might be a low percentage of human-based mistakes, let’s say around 1%. But for a huge store with thousands of products and dozens of sales per hour, it can become critical: 1% of $1 mln turnovers is $10K. At the same time, for small and vulnerable businesses competitive pricing could be a deadly practice by itself because they literally have no margin for error.

That’s why retail businesses, regardless of size, need to use advanced pricing solutions to deal with the task. They’ll help to deal with a few roadblocks retailer meets on the competitive pricing scenario path:

  • Quick collection of competitive data points from different sources, process and analyze it
  • Considering not only competitive prices and retailer’s costs but also markdowns and promotions when setting repricing rules
  • Rapid repricing accordingly to market changes to fit competitive market pricing strategy
  • Analyze competitive pricing strategy on the fly to correct it and meet all retail KPI’s.


Competitive pricing analysis

Even more, all the aforementioned points are just the tip of the pricing iceberg.

What do you need to analyze?

Implement competition-based pricing by tracking your competitors’ prices, but then — make decisions by analyzing them and implementing great pricing decisions.

There are several factors a retailer needs to monitor along with competitive prices. Just to name some of them, it’s collecting data on competitors’ promos and markdowns to apply efficient promo management and use inventory forecasting models to manage stocks. Be attentive towards:

  • Price positioning of your rivals compared to your own store to understand which rival may influence your sales, what items may be sold at a higher price, and what prices are too high.
  • Promos, discounts, and other activities of the competitors. Many customers tend to look for special deals before purchasing things. Constantly track all discounts and deals on the market and launch your own promo being equipped with trustworthy competitor data.
  • Stock availability. If some of your rivals are out of some items, make conclusions!

Pricing is only part of science, but it also art. To master competitive pricing intelligence retailers need not only to do competitive pricing research to use competitive prices in retail pricing strategy creation but also to contemplate other factors and consumers’ demand.

One of the main tasks for the retailer is to get high-quality data on other retailers on the market. Data quality should be guaranteed by the data provider, all data should be delivered in a single interface with detailed transparent reports. Analysis of the qualitative data makes the essence of optimal competitive pricing. What else does it give to a retailer? It’s important to realize what the value of the product is to the end-user. It helps develop business strategies, find a better path to become a retail winner. Not less important, is choosing the right pricing scenarios and pricing models. Strategic thinking is of great use in this case!

As for consumer demand, the retailer can identify patterns in time series data (e.g. seasonality, etc.), watch category trends, calculate the price elasticity of every product, or even build an econometric model.

As you can see, to consider all the mentioned variables, retailers need to use an efficient price intelligence solution. The data should be represented in a friendly to the user interface, to make pricing decisions quickly and effectively. Another requirement: the ability to set up your own schedule for data delivery in order to outperform the competitors by choosing the best repricing time.

Wouldn’t it also be nice to have price recommendations given by your smart competitive intelligence tool? That’s also helpful when you’re trying to avoid price deviations. Competitive pricing based on historical data is even more efficient to dive deeper into market insights, to better understand your performance in comparison with rivals.

Using good competitive pricing software will greatly help increase margins and sales, get a larger market share and improve relations with suppliers.

Know your rival, know your market

To obtain a good perspective of the market, retailers have to evaluate competitors’ positioning by studying their online activity. There are some specific traits that need to be considered:

  • product specification
  • visual depiction
  • online activities (e.g. social media)
  • whether online platforms are mobile-friendly
  • customer support services and feedback
  • customer satisfaction rate

Retailers can follow their competitors by signing-up for their notifications or email campaigns. When it becomes clear what exactly draws customers to your competitors’ products, you are now capable of adjusting your strategy accordingly and remain competitive on the market in the process. The more distinguishing factors you can link up and analyze, the faster you will move onward and obtain the results you hope for.