There is no doubt that price is the most important factor for consumers when buying a product. It’s no surprise that 60% of internet users in the U.S. agree that price is more important than brand when buying a product. So. the right pricing strategy is an essential part of a good business, but with so many pricing techniques out there – it’s not easy to make the right choice. The other thing is, you should be aware that you are not working in a vacuum, so, not considering your competitors’ prices when making a pricing decision can be a fatal mistake. This is why we believe that competitive pricing is one of the best, yet simplest pricing strategies out there.
In the following paragraphs, we will try to explain what is competitive pricing and provide some real-life examples of it. We will then consider the advantages and disadvantages of competition-based pricing and give a small guide on how to perform competitive pricing right.
Competitive pricing or competition-based pricing is a pricing strategy where you take into account the prices of your competitors when setting your products’ prices.
This pricing method is usually used for homogenous products in highly competitive markets and can be also referred to as market-oriented pricing.
When it comes to competitor based pricing, you have three options:
Let’s take two of the most successful smartphone brands at the moment. Apple and Samsung are competing for the customers’ attention and their marketing and pricing strategies are worth very serious studying. We will just take a quick look and see what do they do with their prices. Since the prices in this industry are very dynamic and change over time, we will take the prices on the release dates, to avoid any inconvenience. Also, we need to have in mind that Apple and Samsung don’t release their phone at the same time. Apple usually releases its most popular phones in October, while Samsung does this in January. Disregarding the fact that it’s not the same year, we will take the shortest period between the two releases and compare the phones Apple released in October 2020. (iPhone 12, iPhone 12 Pro, and iPhone 12 Max – released in November) and phones Samsung released in January 2021 (Galaxy S21, S21+, and S21 Ultra). Since Samsung was the one who has released their products later, they had the chance to look at Apple’s prices.
With S21 and S21+ Samsung decided to go a bit below the price of iPhones 12 and 12 Pro. On the other hand, Samsung felt more comfortable with S21 Ultra and decided to go with the price of £1,329 which is considerably more expensive than Apple’s most premium phone in this series – the iPhone 12 Pro Max cost £1,099 at launch. This can be seen as Samsungs message that they are offering a phone with better features than Apple offered a few months before.
Another great example of competitive pricing that is not coming from two brands competing is Amazon. The key to its success is very carefully done competitive pricing intelligence. This allows them to always offer the cheapest price for a product and in this way beat their competition.
In the world of business, nothing is black and white. There is no pricing strategy perfectly tailored for everyone and in every situation. It is more likely that a pricing strategy one brand use with success can be a total mistake for a brand in a different industry or market. We are going to explain the advantages and disadvantages of competitor-based pricing, with the idea to allow you to decide for yourself if this is going to work for you.
Although we stated that competitive pricing is one of the easiest pricing methods to perform, in some cases this could be a time-consuming task whit a few potential points where you can make a mistake. Furthermore, if you don’t do the competitive pricing analysis right, the whole pricing process will be endangered.
The process of competitive pricing can be separated into two big steps:
Competitive pricing intelligence is a process of gathering and analyzing information about your competitors’ prices. This is an essential part of the competitive pricing strategy since the later decision will be made based on the data you have collected and their analysis.
The easiest and most reliable way to conduct a competitive pricing intelligence is by using price monitoring software specialized for those tasks. Good software will not only save your time and resources for gathering pricing information, but it will also open you a door to dynamic pricing, allowing you to update your prices depending on the pricing rules you set based on competitor pricing information.
In a world where the price is almost everything, you need to always keep an eye on your competitors. Having the right price at the right moment can benefit your business a lot. This is why a good pricing strategy is a key to success. Competitive pricing is, with no doubt, one of the most reliable strategies that can help you out., and it is used by everyone, from small businesses to giants like Samsung or Amazon. Performing the competitive pricing right can sometimes be demanding, and this is why we recommend using software to help you out. Price2Spy is one of the best price monitoring tools available. Try it free for 30 days and see which benefits you can get from it.