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 involves the selection of price points for a product that are relative to the prices of key competitors, which gives you an overall advantage in the market. This pricing strategy is usually adopted by companies competing in a market of analogous products. Competitors typically implement competitive pricing at a point of equilibrium, when the price for the product or service has settled at a certain level across the market.
Competitive pricing does not simply consist of underselling your rivals. It involves utilizing deep knowledge of market trends and using them to make informed decisions on your prices.
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 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 implies that your product has unique features compared to competitors, or that purchasing products from your company has 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 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 much bigger chance to stand out on the market.
Competitive pricing analysis
Companies who are seeking to attract more customers and increase revenue should put a lot of consideration into their competitive pricing strategy. In order to develop a successful strategy, the following steps must be taken:
- Analyze the market and identify competitors
- Specify the types of competitive data to be collected and evaluated
- Adopt a software solution to search and analyze selected data, providing a high-quality and up-to-date overview of the market
- Monitor competitors’ behavior using their websites and social media activity in order to figure out the reason customers are attracted to their brand.
The key to successful competitive pricing analysis, like all other pricing strategies, depends on the quality of collected information. Consider important factors such as:
- Comparison depth. You have to take into account every detail – product specification, color, size and other characteristics, usually unavailable in the general description of a product.
- Data delivery. Companies should be able to use up-to-date information collected at maximum 2 hours prior to repricing.
- Delivery time. The data must come in with intervals of 20 to 30 minutes.
- Accuracy. Manual comparison can improve automatic algorithms, ensuring the best results.
- Relation between planned and collected data. The data set may be not be complete due to a lack of information (i.e. some data is not presented on websites).
Nowadays retailers are leaning more towards incorporating automated solutions in order to collect and analyze market data. Software solutions have undeniable advantages over manual procedures. Software algorithms are extremely accurate compared to manual methods. They can process large amounts of data in relation to any given parameter, deliver this data in a timely manner, and generate recommendations based on the price analyses they conduct.
Without a doubt, one of the most essential benefits of adopting automated solutions is that retailers get the chance to leave routine tasks up to software algorithms and focus their attention on building up a successful strategy instead.
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.