By Joemar Carillo, a content writer for Assosia, a retail research company based in the UK.
With the market becoming more and more competitive, companies should carefully implement an effective competitive pricing strategy. Competitive pricing strategy is where the final prices on their products or services have been analysed, modified and evaluated against the prices of their competitors.
With the emergence of digital, there has been a significant increase in the number of e-commerce platforms - as the majority of consumers now shop online. In this lucrative environment, pricing is one of the most critical factors behind consumers purchasing decisions. According to research, online shoppers visit at least three websites before arriving at a final decision. This clearly shows that for online shoppers, pricing and price comparisons are critical factors that impact the buyer’s journey.
There are three types of competitive pricing a company should consider:
- Low Price
The products or services you offer are lower than your competitors. A low pricing strategy is generally adopted when you benefit from economies of scale, and you’re able to bulk produce products, which in return reduces the cost of production.
- High Price
The prices of the products or services you offer are higher in comparison to your competitors. This pricing strategy is suitable for a business who provide added features and benefits that your competitors lack. This type of pricing occurs in the market where the brand is reputable, and consumers buy based on quality rather than price, e.g. luxury goods.
- Matched Price
The prices of the products or services match the price that's offered by your competitors. The product features are the same or very similar, which is why producers focus on trying to differentiate or offer a unique buying experience. So, if your product or service is the same price as your competitor - but the quality is better-quality - then customers will be more inclined to choose you.
Read on to discover several benefits on why competitive pricing is important for your business:
Benefits of Competitive Pricing Strategy
- Higher rate of success
Implementing a competitive pricing strategy for your business can help the business grow. The results of a competitive pricing strategy are usually evident after a short amount of time. Assessing the long term implications requires the business owner to have the ability to effectively understand the overarching trend, and their position in the industry.
Enriching your knowledge about your industry and relevant competitors can allow you to make a better business-related decision, which in the long run, can increase your chances of success in the business world.
In some cases, some business owners don’t achieve their goals as they have incorrectly conducted and utilised their competitive pricing strategy. Thus, to save you from unfortunate results, using a leading competitor monitoring tool can optimise your competitive pricing strategy.
The tool provides you with global insights on your competitor, as well as tracking your competitor’s products or services range and prices over time, for on-going analysis. With this tool you can monitor, control and make changes to the prices accordingly.
- Prevent market loss
Competitive pricing analysis allows the business to regulate the competition by preventing the loss of customers and market share to the competitors. By making the prices the same as your competitors or even cheaper, consumers will be less inclined to move from your brand or choose your competitors products/services over yours, thus enabling you to maintain your market share. Competitor price monitoring allows you to respond to every move your competitors make, which can further help in the better positioning of your business.
- Improve profit margin
The strategy of competitive pricing does not always mean that one should be cutting their prices, or be pricing at the lowest point in the market. Sometimes, pricing in the middle of the range, relative to competitors, works just as effectively and does not significantly impact your bottom line.
Another factor to consider is whether your product or service is price elastic; this means that the price change will have a significant impact on demand as consumers are more price sensitive. This knowledge can give you better insight into whether you should increase or decrease your prices to stay competitive while competing in a price war.
- Dynamic Pricing
Dynamic pricing stands at the top of the competitive pricing analysis methods. With the help of dynamic pricing, information on competitors’ pricing strategy can be frequently obtained. This further improves your ability to compete in the market and also maximises profit. This is one of the most sophisticated and useful competitive pricing approaches, which can be used as a triggering factor to update your own prices, and can take business growth to the next level.
A competitive pricing strategy can be made more efficient if it is combined with several other strategies of pricing. If one wants to hold any profitability through this type of strategy, investing in a price comparison tool is essential. Using price tracking tools will provide you with efficient access to intelligence that your competitors would find difficult to gather manually.