The Competitive Pricing Strategy Guide

The Competitive Pricing Strategy Guide

When a person decides to sell a product, the intention behind the whole process is to gain profits. But, that doesn’t mean that the seller gets a chance of pricing the products based on profit margin or the cost. This is because there are competitors who might be selling the same quality product at the lower cost. And that means, the customers might visit your store but may not purchase the product from you, even if there is a difference of single dollar.  So, it goes without saying, to raise the sales, B2B and B2C companies need to follow a competitive pricing strategy. As a seller, your pricing must be lower than what your competitor offers. 

Now you may think, “How can I lower the price and still gain the profits?” Well, this guide is here at your disposal. Here you will find the answer to most of your doubts and questions. Let’s start with –  What is competitive pricing? Competitive pricing is when a seller sets the price of his product or service based on the price set by his nearest competitor. The competition based pricing works well in a situation when the product is homogenous, or the market is very competitive.  Competitive pricing is also referred to as market-oriented pricing because instead of analyzing their own costs, the sellers consider the market cost.  If you wish to inculcate competitive pricing, then you can choose from three pricing strategies, such as:

  • Low price: The price of the services and products are lower than the competitor, this strategy can suit better if you have a lower production cost.

  • High price: The price of the services and products are higher than the competitor. This strategy may prove beneficial if you offer benefits and extra features.

  • Matches price: The price of the products and services remain the same as the competitor. If you offer a better quality product at the same price as your competitor, than you can gain the upper hand.

One of the classic competitive pricing examples is Pepsi and Coca Cola.  These two brands compete against each other for various factors, right from pricing to quality and features. However, Coca Cola usually charges more on average than Pepsi.

What is the need for tracking the competitor’s pricing?

There are only a few businesses that don’t have competition, other than that every industry has competition. And one of the best ways to evaluate the profits of your competitor is by tracking the product price.

If a product is sold at a higher value, then it certainly means that the business is steadily growing and reaping profits regularly. Likewise, lower pricing can mean that the business may be declining and struggling to generate revenue (But, not in all cases).

Regardless of what B2B and B2C group you belong to, it is vital to track the competitor’s price to survive in a highly competitive market. Or else, your brand can be easily dumped by the consumers.  If you have an SME, then you may not have enough budget or resources to carry out the price audit. In such cases, it is better to inspect the **competitive pricing analysis** of the bigger brands.

However, it is necessary to carefully analyze the prices because bigger brands can still survive by selling products and services at a lower price, which can be a pitfall for small businesses.

Tips for setting a competitive price

  • Evaluate the total cost of ownership of the services and products.

  • Find out its implicit and explicit cost

  • Match the price with your competitor then check if it is feasible for your business to reduce the price so you can compete with the competitors.Even a little mistake can result in heavy losses, thus making your competitor stronger.

Benefits of competitive pricing

  1. Pricing strategy is efficient:

    One of the best competitive pricing advantages is that it allows the seller to combine competition-based pricing strategy with other pricing strategies easily. This way, it becomes simple for the seller to create the final prices of the services and products much more structured.

  2. Gain a stable customer base:

    With competitive pricing, the seller gets the benefit of creating a stable customer base. This is because almost every customer compares the prices of products and services he/she wishes to buy before purchasing it. When the customers find products in your store at the best price,then they will keep purchasing products from you than others.

  3. Prevents pricing competition:

    When companies follow competition-based pricing, they have to keep their prices closest to their competitors. This means there is no room for an extra charge. This way a price cap is automatically on the final size, helping the price war to remain stable.

Disadvantages of competitive pricing

  1. Cannot be used in small businesses:

    The advantages of competition based pricing are mostly limited to larger and stable businesses. This is because the competitive prices may keep on changing and may become hectic for the small business to keep track of. Similarly, the competitive price set by other competitors may not necessarily help small businesses to gain any profits.

  2. Vulnerable to failure:

    Typically the whole concept of setting a competitive price depends upon the competitor who has already set the price. And this means if the competitor fails set the prices appropriately, then the chances of failure and loss increases too.

  3. Cannot attract the customers:

    Not always, the customer goes for pricing. Sometimes, they may seek additional benefits at the same price too. And that means, your competitive pricing may be healthy enough to attract customers but not be sufficient to make them purchase from you.

Over to you

A marketing strategy is never complete without pricing. Similarly, thinking from the consumer’s point of view is vital too. So, make sure to choose the best price for your services and products. But, see to it that your price is close to what your competitor offers. Likewise, do not hesitate to raise the price if you offer much better quality than your competitor. You can utilize Wersel’s competition and price analytics solution to get intel like Minimum Advertised Price (MAP) agreements, the available stock counts of a product, or low product images pages. It offers a granular view of how the product is performing across different market places.



Wersel Marketing Team