Competition Based Pricing: Pros/Cons, Types, And Examples | Competitor Based Pricing

Competition Based Pricing Strategy:

Competition based pricing is a pricing formula used to set a price of the product after competitors analysis. In the Market there are multiple pricing strategies available (like value-based pricing, cost-plus pricing, penetration pricing) which are used by marketers and competitive pricing strategies or competition based pricing is also one of these strategies, which is a little bit more popular among these pricing strategies.

Today we are going to learn about competitive pricing strategies in detail with its pros, cons, and examples. 

Always remember if you want to grow your business “your business growth depends upon the quality and price of the product”. A small change in your pricing strategies can grow your business profits multiple times. That’s why a marketer always tries to improve it.

competition based pricing strategy
competitive pricing strategy

Note: There are lot of terms used in the market related to competition based pricing which are, competitor based pricing, Competition-oriented pricing, competitive pricing strategy and competition based pricing itself, these all 4 terms are the same . You don’t have to get confused if you see any one of these.

Definition of competition based pricing strategy:

1. Competition Based Pricing is a Formula used to set the price of the product based on what the competitors are charging for the same product. Competitive price is a suitable price selected by the company for their product after observing their competitors. This strategy is mostly used when someone has to compete with their competitors in terms of the prices of the products that they are selling.

2. Competitor Based pricing is mostly used to attract the customers towards you in a competitive market.

3. This pricing strategy based on competition uses the information available in the market related to their product like it’s demand, it’s market value, and the competitors price for the same product etc. to set the price of the product rather than using its production cost.

Competition based pricing Example:

Let me explain you from a real life example, Imagine today you go to a shopping mall or a local market to buy a shirt there are few shops in the market who are selling the same shirt in same price but there a shopkeeper of raju who is selling the same shirt with a surprise gift and in that gift you can get any product cost of 10 to 100 rs, where will you go to purchase that shirt, Obviously you will go to raju’s shop and buy that shirt. In this way raju got a new customer by just providing you with 10% of his profit in the form of a surprise gift.

This strategy is similar to competitor based pricing where a shopkeeper used a marketing strategy to grab the customer in a competitive market. Here the shopkeeper changed the price of the product after analysing his competitor and the customer’s needs.

Types of Competition based pricing formula:

1.Penetration Pricing:

Using Penetration pricing formula sellers set the price of the product in this way that the customers have to check it once. Let’s say people use an app to watch movies and series at $300 per year, but this seller offers him the same service at $199 per year in his app, so people can’t ignore this offer.

This penetration pricing strategy is mostly used by new sellers or service providers to attract new customers.

2.Promotional Pricing:

 In promotional pricing strategy companies reduce the price of the product to increase the number of sales and revenue which increases the cash flow of the company. This pricing strategy is used to attract more customers and also to increase its brand value in the market. Let’s say a company sales a product at $400 in which $100 is profit and now company sales almost 500 product in a month ,and now he decided to use this strategy to increase his revenue , so decreases his product price to $350 only to promote and offered this price for the same product when someone buy it at $400. This company doubled his sales and revenue with this strategy.

3.Captive Pricing:

Captive Pricing strategy uses for those products which has both a “main product” and the number of “accessory product”. Like there is a company sales mobile phones to the users with mobile covers, earphones, chargers and multiple mobile accessories, Now i buy a phone from this company then it’s obvious that i will buy the earphone from the same company if i need. So the company increases its sales and revenue by using the captive pricing strategy.

READ MORE: 5 Best Pricing Strategies To Grow Your Business

Advantages and disadvantages of competition based pricing:

Let’s discuss some advantages and disadvantages of competitive pricing.

Advantages of competition based pricing:

1. Decrease your market loss

2. Higher success rate

3. Increases customer trust

Disadvantages of competition based pricing:

1. Unable to sustain for long term: When you sell the product at lower price than your competitors then you will not be able to scale up your business.

2. Blindly following the competitors: Since you are following the competitors to promote your product and if your competitors are going in a wrong way then you will do the same.

3. look similar: As you are following your competitors to sell your product so you will not look unique in the market.

What is an example of competition based pricing strategy?

The best example of competitive pricing strategy is the jio (internet providing company) this company bring the revolution in the internet sector by his pricing strategy. Before this company, internet was too expensive but now jio made it cheaper by competing the prices of others internet providers.

What are the advantages of competitive pricing?

It has mainly three advantages, the first one is that it decreases your market loss, second, it attracts the customer faster and the third is that it increases the customer trust with the brand or product.

How to do competitive pricing analysis?

Here are few steps through which you can do the best competitive pricing analysis:
1. Search your competitors in the market.
2. Check their product reviews and try to find some fault.
3. Try to check their reach in the market according to customers. Check whether they are targeting only rich people or all type of people.
4. Try to launch your product at lower price than your competitor.

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