Competitive Pricing Strategy – See How Products Are Priced

Effective pricing is essential for a business. That’s the only way they’d know at what price they should offer a product, while maintaining a good profit margin and keeping up with the competition. A business can pick from a variety of pricing strategies and the selection depends on different factors.

A business can set a price to maximise profitability on each unit sold or on the overall market share. It can set a price to stop competitors from entering the market, or to increase its market share, or simply to stay in the market.

Pricing is one of the most important components when it comes to creating marketing strategies. The price is one of the first things that a consumer notices about a product and is one of the deciding factors when it comes to their decision to buy it or not.

Needless to say, the competition in the market is on a constant rise, especially with the ever growing popularity of online shopping. This means that businesses need to keep an eye on their competitors’ behaviour while setting prices in order to get the much needed competitive edge in the market. Comparing prices online is easy and customers are well aware about the monetary value of a product. These factors are also important considerations while setting the price for a product or service.

Among the various models of pricing, competitive pricing is one that has caught the fancy of many businesses. Having a monopoly is one thing—you can set the price the way you want (of course there are few government norms) but setting pricing strategies based on competitors’ behaviour isn’t an easy task.

Here’s an insight to competitive pricing theory, used by most companies around the world.

What Is Competitive Pricing Strategy?

When a product is priced in accordance with what the competition is charging, it’s known as competitive pricing. It is one of the four major pricing strategies adopted by most companies. The other three include, cost-plus strategy, where a prefixed profit margin is added over the total cost of the product, demand pricing, under which the price is set by establishing the optimal relationship between volume and price, and markup pricing, where a percentage is added (as profit) over the wholesale price of the product.

When it comes to competition based pricing strategy, the purchasing behaviour of customers is an important criteria. Some of the factors that companies take into account are costs, competition, and price sensitivity. In order to ensure profitable sustenance of the business, managers have to set the price such that it covers the production cost, company overheads costs, and also offers suitable profits.

In order to establish the right competitive price for your product, you need to take into account the product life cycle and the stage your product is in. Competition is one factor that you can ignore if your product is in the developmental stage. However, if it’s a part of the market, and fighting with a relatively high number of substitutes and competitors, then considering the actions of your competitors might be one factor driving your profit. You have three choices—price your product lower, higher, or same as your competitor. The most common tactic is to set the price according to the competitors, also known as competitive pricing strategy.

As already mentioned, there are three things that you can do in order to set the right price for your products:

1. If you’re planning to set the price above the price of your competitor, then you’d need to bring in new features and improvements in your product that would justify the increased price.
2. Pricing below your competitor’s price depends on your resources. If you can increase the volume without affecting the production cost to a great extent, then this might be a good strategy for you. However, there’s the risk of diminishing profit margin and you might not be able to recover your sunk cost and even face bankruptcy. So, it’s really important that you evaluate each step of your competitor while establishing the price for your product.
3. When you set a price equivalent to your competitor, then the differentiating factors cease to exist. The focus shifts to the product itself, and if you can offer more (and better) features at the same time, it’s a win-win for you, and your competitors will fall behind.

So, competitive pricing is a game to play. Competitive pricing intelligence demands that you have in-depth knowledge of your market and target audience.

A lot of effort goes into the process of establishing the price based on competition. According to a recent survey, minor variations in prices can lower or raise profit margins by more than 20-25%. Competitive price analysis is essential to competitive pricing strategies. Let’s look at some competitive pricing examples, to get a better understanding of this process.

Competitive Pricing Examples

The concept of competitive pricing is best understood when there are only two competing parties. Suppose, two companies manufacture detergent for washing clothes. Both will charge the same price and if one company wants to compete with the other, will advertise saying why it’s product is better.

Even big corporate giants sometimes resort to competitive pricing strategy when they want to enter a new market. They have to set the price almost equivalent to their competitor, even if the production cost is high. In case the production cost is higher, they’d have to play around and adjust prices of packaging, advertising, and distribution.

Some companies have to use competitor based pricing, as often price is the only factor customers consider while buying a product and the switching cost for buying a product from two different stores is very low. However, in many cases like software, competitor’s behaviour or data shouldn’t be the central factor for determining prices. There are numerous other variables that need to be considered in this case.

While keeping the competition factor is important while setting prices, it shouldn’t be made the central pillar.

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How to Advertise to Your Competition’s Customers When They’re Out of Stock

The more successful you are in business, the more cutthroat the competition becomes. That’s simply the reality that your company must face, regardless of your industry. Strategy is key to maintaining an edge over other companies within your niche, and advertising oftentimes plays an integral role in establishing the mission and reputation of your business. Even with that fierce pursuit of customers, you must adhere to certain rules when it comes to promoting your products and/or services to prospects. This does not, however, preclude you from employing the latest technology to stay abreast of what your competitors may be up to.

Keep Your Enemies Closer

As the saying goes, wise individuals know that it’s best to keep their adversaries under a watchful eye. Such is the case in today’s professional landscape. However, now this principle takes the form of sophisticated monitoring systems you can use to assess your competitors’ prices, behavior and activity. When employed effectively, this approach can even clue you into when your competition is running low on a particular product, and once that inventory finally hits zero, that’s a prime opportunity for you to pump up your efforts to win over some of their prospective customers.

Try These Tactics

Finding new and innovative ways to reach out to prospects should be a constant focus of your business. After all, the best way to expand your company is to establish an ongoing relationship with the very individuals whose patronage you desire. Yet, here are some smart ways to cut into your competitors’ customer base that just may pay off, especially when they are out of stock on a particular product.

 

  • Analyze social media networks: The emergence of social media has made it easier than ever for companies to connect directly with customers. However, it also allows you to check in on your competition and target their customer base. For the purposes of poaching their business, consider digging into Twitter followers, LinkedIn connections and Facebook likes. In particular, you can also pinpoint the demographic you want by investing in Facebook ads.

 

  • Play the Google game: When it comes to the online space, few companies are as omnipresent as Google. As such, the company offers several different venues you can use to target your competition. From honing in on keyword brand terms on Gmail ads to focusing on a predefined audience with the custom affinity audience feature, Google is a key tool you should be using to its full capability to build your customer base.

 

  • Engage in content marketing: If a customer is all set to make a purchase and then finds that product is “out of stock,” the most likely alternative they’ll turn to will be one they trust and/or are familiar with. That’s why content marketing could be such a useful tool in reaching out to your competitors’ prospects. Though not a form of advertising per se, content marketing builds trust with consumers and allows you to emerge as an easy favorite for subsequent online searches customers will engage in to find a suitable replacement for the product they elsewhere found out of stock. Fill the market with blog posts and other content which allows you to highlight your products and stay top of mind for potential customers.

 

  • Kick up your YouTube presence: One of the most prominent trends right now is a gradual leaning towards video content. Targeting customers via your company’s YouTube presence is a clever move to stay in line with your competition. The site allows advertisers to run brief ads before other videos, and this may present a unique opportunity for you to go after competitor content directly. There may be no better way to keep your prospects in the know about everything your product has to offer.

The Right Moment to Strike

Customers may fret when they see that a product they’re interested in is “out of stock,” but the value that this has for your business cannot be underestimated. Consider it a second chance to win back a consumer who was dangerously close to opting for your competition. Such opportunities can be identified and acted on when you have the right strategies in place to facilitate this realization, but remaining top-of-mind with your potential customers helps to ease them into a purchase when that critical moment comes wherein a competitor has depleted their inventory. Remember that remaining persistent and vigilant is half the battle when it comes to fostering growth.

For more details about how you should approach pricing and foster your customer base, check out our new eBook, “A Comprehensive Guide to Competitive Online Retail Pricing Strategies.”

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How to Boost Retail Sales with Automated Discount Pricing

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5 Online Retail Pricing Strategy Examples Worth Copying

Buy One Get One Free deals, Flat 50% off, Minimum 70% off & other crazy deals! Without them, where’s the fun in shopping online? For eCommerce owners, pricing their products is one of the most daunting tasks. They feel that not only should their prices be attractive for shoppers, but sales figures should always be in the peak of health. Online retailers use a variety of strategies to price their products to keep shoppers intrigued and coming back for more.

Here are the top 5 eCommerce pricing strategy examples we think are worth copying.
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