Is a firms strategy of setting prices that are similar to those of major competitors?
How does competition-based pricing work? And when does it make sense to use it? Read about the pros and cons of competitive pricing here! Show
If there is one thing that Simon-Kucher is renowned for, it’s pricing. Specifically, strategically using pricing to drive profits and help companies grow. If you have had the opportunity to work with our experts over the last 35 years, then you will probably be very familiar with the term value pricing. Identifying, creating, and monetizing value is usually top of the agenda in our projects as companies recognize the importance of moving away from the cost-plus approach. We also train teams to sell on value, not price, so that if a customer comes along and argues that the “competitor does it cheaper” the sales rep is equipped with the right value argumentation and counter objections to defend a potentially higher price. Defending price will become increasingly important as inflation rates rise. Our recent Simon-Kucher Global Pricing Study showed how most surveyed companies are experiencing increased pressure due to low-price competition and stronger customer negotiation power. In such a situation, it may be tempting to “play it safe” by looking to competitors and pricing accordingly. There are many reasons why this can in fact be a dangerous strategy – the risk of a price war being just one of them. But before we rule out competition-based pricing completely, let’s explore the topic in a bit more detail. How does competition-based pricing work? And when does it make sense to use it?
Competitive dynamic pricing is a popular strategy in ecommerce, where algorithms will analyze other brands selling similar products and then adjust product prices in real-time. For example, an etailer giant like Amazon will change the prices of its products multiple times per day based on competitor prices. This can make sense in an online environment with high price transparency and comparability between products. When customers can cross-check price tags in just a click or a swipe, overshooting on price could lead to abandoned shopping carts. However, rather than a competitive pricing strategy being profitable in itself, it is more likely to contribute to profitability by driving overall volumes, and may also rely on customers adding less comparable, higher margin items to their basket. Grocery pricing can also be highly competitive. When it comes to the weekly essentials, a customer is likely to have price top-of-mind. In the UK, comparison sites like Trolley and Compare Basket make it incredibly simple for customers to find the best deal. Therefore, particularly for low-cost items and commoditized products, competition-based pricing is usually the strategy of choice. However, it is important to remember that a supermarket will differentiate from products where brand is relevant and where customers will be reluctant to substitute their regular purchase. There is no one-size-fits all pricing strategy for every product in store and not all items will be priced in line with the competition. To sum up… When is it best to use competition-based pricing?
When is competition-based pricing not the right strategy?
These are just some of the questions you can ask to determine whether a competition-based strategy is the right way to go or not. If the answer to one or more of these questions is “yes”, then you would probably be much better off exploring a value-based strategy. Inflation is rising, and with this comes the risk to companies of margin erosion and pressure on profitability. If anything, the majority of companies will now need to urgently examine how they can increase their prices, rather than drop them to match the competition. If you are looking for some useful tips on how to offset inflation through price increases – without breaking contracts, “waking the sleepers”, increasing churn, or damaging your reputation – then I highly recommend these nine steps shared by my colleague: Price Inflation on the Rise: Managing Your Price Increase Process. Interested in a more detailed discussion based on your individual pricing needs? Then reach out to discuss pricing strategies today! Is a firm's strategy of setting prices that are similar to those of major competitors?Competitive pricing is the process of selecting strategic price points to best take advantage of a product or service based market relative to competition.
What is competitor pricing strategy?What Is Competitive Pricing Strategy? Competitive pricing is the process of strategically selecting price points for your goods or services based on competitor pricing in your market or niche, rather than basing prices solely on business costs or target profit margins.
Which pricing strategy is used when a company wishes to match its competitors prices?1. Competition-Based Pricing Strategy. Competition-based pricing is also known as competitive pricing or competitor-based pricing. This pricing strategy focuses on the existing market rate (or going rate) for a company's product or service; it doesn't take into account the cost of their product or consumer demand.
What are the 4 pricing strategies?What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
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