Competitive pricing can be used across industries. However, to apply the pricing strategy properly, there are particular aspects to know about it. Further are the core elements needed to get deep insights into competitive pricing.
Any player in the retail industry understands the power of competitive pricing. With a proper vision of the market and competition, it is possible to develop the most constructive competitive pricing strategies.
The definition of a competitive-based pricing
In short, competitive-based pricing is a pricing approach that focuses on determining the prices for products and services based on the ongoing situation in the market. A more comprehensive vision of competitor-based pricing requires considering many more elements.
Any version of competitive-based pricing focuses on boosting sales, increasing revenues, and increasing competitive advantage. Often, the phenomenon also referred to as market-based pricing, comes along with smart pricing strategies. Such a method considers all the past and presents alterations on the market to determine the best pricing approach to face the ongoing competition.
The role of competitive pricing in a business environment
One of the primary goals of any business is to stay relevant by staying competitive. The more competition a retailer faces, the higher the importance of staying relevant. More importantly, to maintain competition, companies need to have good profits from properly applied pricing strategies.
Nonetheless, while competitive pricing plays a major role in any given business environment, implementing it is not an easy task. You need to be ready to work with many raw data and variables. Even greater challenges occur when retailers start considering the role of SKUs in the entire scheme of competitive pricing. When working with data and SKUs, there is always a chance to use the wrong information, which leads to an inadequate understanding of the market and competition.
Advantages and disadvantages competitive-based pricing brings
Many companies prefer competitive pricing to any other pricing strategy. The advantages of market-based pricing often determine such a choice. To name a few, there are particular benefits of competitive pricing to consider:
- Setting lower prices grants an advantage over competitors. Pricing is a powerful strategy that can help smaller companies battle even big rivals on the market.
- Relevant price points meet the demand and customer expectations. If consumers perceive your prices as fair, they will return to your brand, which increases customer loyalty.
- Growth of the revenue through smart pricing. Competitive pricing grants a chance to provide fair prices for unique products, attracting customers.
- Room for flexibility. Competitive pricing can help stay flexible in a highly competitive market environment.
These advantages make competitive pricing appealing. When boosting the method’s benefits, companies usually refer to advanced pricing algorithms like product matching software. Yet, competitive pricing is not a silver bullet, and there are certain disadvantages to mention:
- A miscalculation in pricing strategy can lead to revenue loss. As mentioned above, when working with false data, one can be left with an inadequate pricing strategy.
- Lack of data on competitors. When a firm does not have enough data on competitors, it can result in ineffective competitive pricing.
- Greater reliance on competitors’ information can lead to margin cost losses. Putting too much emphasis on competitors can lead to companies overlooking other crucial variables.
Regardless of the challenges of competitive pricing, there is always a possibility to rip some benefits. Such a chance can be increased when firms employ advanced software solutions like product matching software.
Ways of adopting competitive-based pricing
To use competitive pricing, there are several elements to consider. Essentially, it all depends on prices, deals, price indexes, discounts, availability, and quality of products. Companies collect all the selected features and start an investigation. The greater the precision of the investigation, the higher the chance of adopting effective market-based pricing.
When it comes to adopting the strategy, one of the most important approaches is to make it coherent with the overall business objectives. Correlating competitive pricing with business strategies illustrates that adoption of the phenomenon directly depends on how companies align it with various business functions.
Applicability and outcomes of market-based pricing
In a real practical setting, especially in retail, market-based pricing or competitive pricing is one of the most effective strategies for companies with several rivals selling similar products and generally providing products of the same quality. Competitive pricing puts a massive value and emphasis on rivals and competitors. Although the customers are more likely to respond to the lower price, they also might be willing to spend more if a product has unique value or an additional offer is attached.
There are several key examples of companies using competitive pricing. One of the most famous instances, there is Coca-Cola and Pepsi. These two firms offer similar products, and pricing for them is the major competitive strategy. In such a case, Coca-Cola effectively used competitive pricing against its key rival. As a result, Coca-Cola increased its revenue through high volumes of products brought by lower prices. Remember that competitive pricing needs to be adopted in certain conditions, especially considering the competition.
Why consider competitive pricing in the first place?
Competitive pricing can bring massive value to a business. The key reason is that the strategy functions through lowering pricing, which every firm can achieve. However, the most important thing is getting a competitive advantage through lower prices while ensuring no adverse outcomes for the business.
Besides, with the rise of online shopping, the value of proper pricing have scyrocketed. Most companies use pricing as a tool to keep loyal customers and attract new ones. Pricing can also be used to convey a uniqueness of a product and its quality in contrast to what competitors offer.
Conclusion
Keeping all mentioned above in mind, competitive pricing is not a panacea. It can be challenging to implement, especially if a business does it without proper alignment to business goals. However, when looking for a competitive advantage, increase in sales volumes, and boost in revenues, competitive pricing can be of great help. The trick is to adopt it in properly investigated conditions.
