Competitive pricing is one of the best pricing strategies.

There is no doubt that price is a key factor for consumers when purchasing a product or service. 60% of Internet users agree that price is more important than brand. The right pricing strategy is an integral part of good business, but with so many pricing strategies out there, making the right choice can be difficult. It's important to realize that not taking your competitors' prices into account when making a pricing decision can be a fatal mistake. Competitive pricing may be your best strategy in the long run.

We will try to explain what competitive pricing is, consider its advantages and disadvantages, and also tell you how to correctly set competitive pricing.

What is competitive pricing?

Competitive or market pricing is a pricing strategy in which you take into account your competitors' prices when determining the cost of your products. This pricing method is typically used for homogeneous products in highly competitive markets.

Competitive Pricing Strategies

When it comes to competitive pricing, you have three options to choose from:

Set a higher price than competitors. This strategy can be used when you decide to increase your income, and maybe even sales, by setting a higher price than your competitors. This may not seem like a logical decision at first, but charging a higher price can help improve your brand image. But you have to be careful – if you want to get more, you need to offer more, so think about the extra features and premium product options you can offer.

Set a price similar to competitors' prices. In this case, price is excluded as a factor, the focus will be on the brand itself and the functions that the product can offer. If you can offer more than your competitors, this strategy is right for you.

Set prices below competitors' prices. You need to be careful here. If you are just entering the market and are trying to gain attention or survive in a competitive market environment, this method can help. However, do not forget that a lower price can reduce profits as well as your brand image.

How to implement competitive pricing?

Although competitive pricing is considered one of the simplest, in some cases it can be a time-consuming task with several potential points to go wrong. Moreover, if you make a mistake, you can lose sales and profits. The competitive pricing process comes down to collecting data, analytics, and setting the right price.

Market analysis – an important part of a competitive pricing strategy because subsequent decisions will be made based on the data you collect.

The simplest and most reliable way to conduct competitive pricing analytics is to use a specialized price monitoring service. Good software will not only save you time and resources, but also open up opportunities for dynamic pricing.

Pros and cons of competitive pricing

In the world of business, nothing is absolute. There is no pricing strategy that is perfect for everyone in every situation. Obviously, a pricing strategy used successfully by one brand may be a complete failure for a brand in another industry or market.

Benefits of Competitive Pricing

Less risk. If you are new to the market, then the likelihood of errors in pricing is high. However, if you rely on the prices of competitors who have been in business for a long time, you can reduce your risks, because they have some experience in pricing.

Relative simplicity. The essence of the strategy is to identify the main competitors and collect their prices, after which you just need to make a decision based on the data obtained. Of course, in some industries this can be a very difficult task due to the huge number of products and frequent price changes, but this is where price monitoring services come to the rescue.

Flexibility. You can always combine competition-based pricing with other strategies pricing to get the perfect price.

Disadvantages of Competitive Pricing

Inattention. There is a risk of missing some important details that your competitors' products may have. This may lead to erroneous pricing.

You won't stand out. If you decide to follow your competitors' prices, you will become one of many, and it will be more difficult to create something recognizable.

Repeating mistakes. What if your competitors made mistakes when setting their prices? You will make exactly the same mistakes and miss the opportunity to beat them by setting the right prices.

Resources. For smaller companies, the task of collecting and comparing prices can be complex and require more people and resources. This problem can be overcome with the help of special monitoring services.

Potential problems and solutions

Price wars and declining margins are common problems that businesses face when implementing competitive pricing strategies.

Price wars occur when competitors continually change their prices to gain more market share, resulting in a race to the bottom. On the one hand, this will benefit consumers in the short term, on the other hand, it will lead to significant financial losses for businesses.

Margin erosion refers to the gradual decline in profit margins as prices fall to remain competitive.

The key to mitigating these risks is to find a balance between offering competitive prices and maintaining profitability through other means, such as cost optimization, product differentiation or value-added services.

How to make a profit and stay competitive?

Maintaining profitability while remaining competitive is a critical business goal. To achieve this, businesses can focus on a few key points. Strategies such as value-added services and product differentiation can be quite effective.

Value-added services involve providing additional benefits or features beyond the core product, increasing perceived value to customers. By introducing additional services, businesses can justify higher prices and differentiate themselves from competitors.

Product differentiation involves creating unique features or characteristics that differentiate the product from others in the market. This can be achieved through innovative design, superior quality or exclusive functionality. By differentiating their offerings, businesses can attract customers willing to pay more for differentiation.

By implementing these strategies, businesses can overcome price competition and stand out in a crowded market while increasing their profits.

Conclusion

In a world where price determines almost everything, you need to monitor the pricing policies of your competitors. Having the right price at the right time can bring big profits to your business. This is why a good pricing strategy is key to success.