Which pricing strategy is used when a company wishes to match its competitors prices?
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Definition: Price is the value that is put to a product or service and is the result of a complex set of calculations, research and understanding and risk taking ability. A pricing strategy takes into account segments, ability to pay, market conditions, competitor actions, trade margins and input costs, amongst others. It is targeted at the defined customers and against competitors. Description: There are several pricing strategies: Premium pricing: high price is used as a defining criterion. Such pricing strategies work in segments and industries where a strong competitive advantage exists for the company. Example: Porche in cars and Gillette in blades. Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved. Example: Mobile phone rates in India; housing loans etc. Economy pricing: no-frills price. Margins are wafer thin; overheads like marketing and advertising costs are very low. Targets the mass market and high market share. Example: Friendly wash detergents; Nirma; local tea producers. Skimming strategy: high price is charged for a product till such time as competitors allow after which prices can be dropped. The idea is to recover maximum money before the product or segment attracts more competitors who will lower profits for all concerned. Example: the earliest prices for mobile phones, VCRs and other electronic items where a few players ruled attracted lower cost Asian players. These are the four basic strategies, variations of which are used in the industry.
[Free Consultation] Are you spending money on advertising but not getting the results you want? Are you looking for more sales and leads but have no idea where or how to start? Get help from our world-class marketing experts in a free consultation call. Lower pricing is a winning strategy to raise sales and this is true for both B2C and B2B companies. Customers always prefer products or services that come at the best price. As a seller, you definitely want your prices to be lower than your competitors. But how do you do that and still turn a profit? This guide will explain in detail about competitive pricing, its advantages and how to implement a competitive pricing strategy that is hard to beat. What Is Competitive Pricing?When you set the prices of your products or services based on the prices set by your closest competitors, this is known as competitive pricing. It applies when the product is homogenous and the market is highly competitive. Competitive pricing is also known as market-oriented pricing because companies consider the market prices instead of analyzing their own costs. When the market is competitive, especially for common products like groceries, marketers follow the strategy of competitive pricing where the final prices are based on what the competitors are charging, as shown in the below figure: A competitive pricing strategy is adopted by companies to set the prices of their products or services after carefully evaluating the pricing strategy of their competitors. Moreover, competitive pricing allows companies to identify the best prices without the need to invest in a price-setting strategy. They can easily analyze the price of their competitors and set a price that is closest to the competition, as illustrated in the below figure: Source A company adopting a competitive pricing strategy has three options:
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Examples of Competition-Based PricingHere are some examples of a competition-oriented pricing strategy:
Get My Free B2B Marketing Plan Why You Should Understand the Pricing of Your CompetitorsCompetition is a rivalry between two or more entities for recognition. As per Collins dictionary: “Competition is an activity involving two or more firms, in which each firm tries to get people to buy its own goods in preference to the other firms’ goods.” Almost every industry has competition and one of the best ways to analyze the progress of your competitors’ marketing strategy is by keeping a track of its product prices. High product prices often indicate that the firm is growing at a steady rate and is reaping profits. Prices on the lower side that keep declining indicates that the firm is struggling to generate revenue. (Please note that this might not be the case in all circumstances, but in most cases, this scenario holds true.) No matter what you are selling and whether you belong to the B2B or B2C group, tracking the prices of your competitors is absolutely important. In a highly competitive market, customers have plenty of options to choose from, particularly now that most products are available online. Several similarly styled products are available in the price bracket that are closer to each variant, which means that if you keep the prices of your products or services too high, then people can easily dump your brand because a lower-priced alternative is easily available. Mostly, bigger brands adjust the prices of their products or services and the smaller firms are bound to follow that because smaller companies do not have the budget or resources to carry out a price audit right from the scratch. An easier way is to keep an eye on the bigger businesses and adjust your prices in accordance with the prices set by top brands. This is the reason why some smaller companies fail to grow and go out of business because they aren’t able to match the low prices offered by their bigger counterparts. Source Hence, it is important to carefully analyze the prices offered by your competitors in order to stay in business. Also, you must not blindly adjust the prices of your products just because your competitors do, as that can push you out of business. First you need to identify the total cost of ownership of the product or service and determine the explicit and implicit costs (explained later in this article). Thereafter, you must match the prices and identify whether it is feasible for you to reduce your prices in order to compete with your competitors. Failing to do so might result in heavy losses that will make your competitors stronger than before. Learn More:
What Are the Advantages and Disadvantages of Competitive Pricing?A competitive pricing strategy is not the only pricing strategy that businesses need to consider. There are other pricing strategies like premium pricing, economy pricing, price skimming, bundle pricing, psychology pricing, etc. The choice of pricing strategy must suit the exact needs of your business. If you are doing business in a competitive niche then a competitive pricing strategy might be the best option for you. Now, let’s have a look at some of the advantages and disadvantages that this type of pricing strategy offers. Advantages of Competitive Pricing StrategyA competitive pricing strategy should be used when the product has reached the level of equilibrium, meaning that the product is popular in the market and a lot of companies are manufacturing it. Here are the top advantages of adopting a competitive pricing strategy:
Disadvantages of Competitive Pricing StrategyIf you are a small business owner looking to compete with bigger brands then you must think twice before implementing the competitive pricing strategy because you can risk losing your entire business. In such cases, choosing a price that is based on the actual manufacturing cost of the product should be adopted. Here are some of the disadvantages of a competitive pricing strategy:
Get My Free B2B Marketing Plan How to Do Competitive Pricing AnalysisFollow the below steps in order to perform a comprehensive competitive pricing analysis: Step 1: Answer Some Vital QuestionsFirst, you must find out the answers to these questions that will help you gather the required data to be used in the steps that will follow.
Step 2: Identify the Total Cost of OwnershipCompetitive pricing lets you identify the total cost of ownership which is a combination of explicit costs and implicit costs. Hence, in order to start your competitive pricing analysis, you first need to find out the explicit and implicit costs associated with the production. Explicit costs are easily identified expenditures that can be measured in monetary terms. Set-up costs, advertisements, wages, rent, taxes and service fees are examples of explicit costs. Implicit costs are expenditures that are difficult to measure directly under monetary terms. Implicit costs are not shown as a separate expense. Costs like rent of the building if the premises are owned by the company or the number of hours that the business owner works for the development and promotion of the products are examples of implicit costs. You need to figure out the total cost of ownership of the product or service and use it for the computation of the final price. If you are able to identify that the prices offered by your competitors are not close to the ownership costs then you need to reduce your explicit costs to keep it closer to your competitor’s price. Step 3: Compare Competitor Prices and Keep the Data FreshThe quality of the data plays an important role in this regard. Product and pricing data should be calculated and compared every two hours. This keeps the pricing structure at par with the competitors. Competitor price tracking software can be a good option to use, especially in the case of e-commerce retailers. The software can automatically fetch the prices of the tracked products from a number of popular websites and generate a smart price for your product. This smart price is automatically calculated using a sophisticated algorithm that considers the competitors’ prices before calculating the smart price. Have a look at the below screenshot from Prisync which is an automatic price tracking software: Another tool that you can use for price analysis is Data Crops. This software is used by several retail businesses for price monitoring and price comparison. Here is a screenshot of Data Crops that lists the different manufacturers and the total number of products offered by them for an effective price comparison of your product against the competition. Moreover, a deeper visual analysis lets you easily identify which product prices are higher or lower: Learn More:
How B2B Businesses Can Identify the Best PricesWhat we learned about the competitive pricing strategy and how to perform an analysis to find the best price holds true for both B2B and B2C businesses, but there are a few essentials that B2B businesses need to keep in mind because they are dealing with other businesses. As per a study conducted by TNS intelligence, the following factors come in to play when deciding the optimum pricing structure for B2B companies:
ConclusionPricing is an important element of your entire marketing strategy, so you need to choose the best price for your product or service. Keeping the prices closest to your competitors’ price minimizes the risks but reduces the profits. Do not hesitate to raise the prices of your products if you feel that your product is much higher quality than what your competitor is offering. A competitive pricing strategy is one of the best ways to determine the best prices for your products and services. Follow it to your business advantage! If you need help, contact us for a B2B marketing strategy session. Get My Free B2B Marketing Plan Which pricing strategy is used when a company wishes to match its competitors?The competition-based pricing method, also known as competitive pricing, refers to the process by which a company prices its products or goods and services according to their competitors. It is a part of a company's Revenue Management Strategy.
What is competitive matching pricing?Price matching refers to matching a lower product price from a store in the competitive market. For example, a retail store that sells you the same product for a lower price. Companies use this strategy to save time and money because customers get the lower price available without visiting another store or shop.
What is competitionCompetition-based pricing is a strategy by which price varies according to variations in the price of competitors. The product price is detached from a customer's willingness to pay or product value and is attached solely to competitor prices.
What are the 4 types of pricing methods?There are 4 Pricing Methods that can help you put a price on what you sell: replacement cost, market comparison, discounted cash flow/net present value, and value comparison.
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