Sales

What is Competitive Based Pricing And How To Win With It

Competitive-based pricing is a vital strategy in the world of sales, and this blog breaks it down for you.

Rory Sadler
September 29, 2023
February 24, 2024
Competitive-based pricing is a vital strategy in the world of sales, and this blog breaks it down for you.
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As businesses, we're perpetually caught in the vortex of pricing strategies. With a myriad of methods, one that often stands out in the crowd is competition-based pricing.

But is it the holy grail of pricing strategies or just another buzzword? Let's dive into the nitty-gritty and decipher the advantages and disadvantages of competition-based pricing. ‍

Dissecting Competition-Based Pricing

Let's start with the basics. What exactly is competition-based pricing?

In simple terms, competition-based pricing is when you set your prices based on what your competitors are charging. It's like spying on your competitors, but in a legal and ethical way.

Unlike other strategies like value-based or cost-plus pricing, competition-based pricing focuses exclusively on competitors’ prices, leaving customer value on the sidelines.

Types of Competition-Based Pricing

Now that we've got the definition down, what are the types of competition-based pricing?

Broadly, competition-based pricing can be divided into three main categories:

Above the competition (premium pricing)

This is when your product or service is superior, and you set a premium price above the market value. It's like saying, "Hey, we're the best, and we know it."‍

The same as the competition (price matching)

This is when you promise your customers to offer the same price as your competitors for identical products. It's like saying, "We'll match their price, but we're cooler."

Below the competition (loss leader pricing)

This is when you deliberately set your prices lower than your competitors to attract customers and increase market share. It's like saying, "We're cheap, but we're still awesome."

When to Use Competition-Based Pricing

Competition-based pricing is often used in industries where numerous companies sell similar products or services, like retail and e-commerce.

In situations where there's minimal product variation and a ton of options, competition-based pricing can be a useful tool. Especially for startups entering a new market without historical pricing data, this strategy can be a quick route to market.

When Not to Use Competition-Based Pricing

However, competition-based pricing isn't the magical solution for every business.

If your business is the king of the market with very little competition, other pricing strategies like value-based pricing might be a better fit. Similarly, if your product or service is unique enough to make customers throw money at you, competition-based pricing might not be the best strategy.

Advantages of Competition-Based Pricing

Alright, now that we know what competition-based pricing is and when to use it, let's talk about its advantages.

It's simple

Compared to other complex pricing strategies, competition-based pricing is relatively easy to implement. All you have to do is check out your competitors' prices and decide where you want to stand. It's like picking out an outfit for a party based on what everyone else is wearing.

Quick to market

Competition-based pricing can be a fantastic choice for brands that want to enter a market quickly. It's like taking a shortcut in a race.

Increased revenue and market share

A competition-based pricing strategy, especially price matching or loss leader pricing, can help businesses snatch market share from competitors. It's like playing a strategic game of chess. ♟️

Improved profit margin

When done right, competition-based pricing can give your profits a significant boost. But remember, this strategy should be used wisely. It's like using a secret weapon in a game.

Customer satisfaction

With competition-based pricing, customers can easily gauge the value of your product based on how your prices compare to your competitors. It's like giving your customers a compass to navigate through the market.

Disadvantages of Competition-Based Pricing

But hold your horses, competition-based pricing isn't all rainbows and unicorns. It comes with its own set of disadvantages.

Lower margins

A price matching or loss leader pricing strategy can lead to thinner profit margins. It's like throwing a lavish party on a tight budget.

Missed opportunities

When you base your prices on your competitors, you might miss out on potential revenue. It's like leaving money on the table.

Lack of insight

If you're solely relying on your competitors to set your prices, you're assuming they've done their homework. But what if they haven't? It's like blindly following someone who's lost.

Examples of Competition-Based Pricing

Let's look at some real-world examples of competition-based pricing.

Premium pricing example

Think of Apple. Their products are priced much higher than their competitors, but consumers are willing to pay the premium because of the perceived quality and brand reputation.

Price matching example

A classic example is Best Buy's price match guarantee, where they promise to match the price of a product if a customer finds the same product for a lower price at a competing store.

Loss leader pricing example

Walmart is famous for its loss leader pricing, where they price certain products below cost to attract customers into their stores.

Implementing Competition-Based Pricing Smartly

Now, how can you implement a competition-based pricing strategy without falling into the common pitfalls? The answer is simple: use data and technology.

Tools like Flintfox's Intelligent Pricing Engine can analyze large data sets, including competitor pricing, in seconds. It's like having a supercomputer do all the heavy lifting for you.

So, are you ready to take your pricing strategy to the next level?

Final Thoughts

Competition-based pricing can be a powerful tool in your pricing strategy arsenal.

But remember, it's not a one-size-fits-all solution. Depending on your product, market, and competitors, it might be the perfect fit or a total miss.

The key is to use competition-based pricing as part of a well-rounded pricing strategy that also considers customer value and cost of production. After all, pricing is both an art and a science.