Price Management

How to Create a Strong Competition-Oriented Pricing Strategy

One of the first steps to take when building a pricing strategy is to think about the quality of your products, the needs of your buyers, and, of course, the ever-present competition.

After a competitive analysis, take a good look at your product or service to identify your differentiating point.

It is not easy to set prices and get them right the first time. Consumers have become experts in researching before buying and if they think your product is too expensive, they will go straight to the competition.

Beware, you may also encounter the opposite effect. If they think your price is too low, they may end up doubting its quality and you don’t want that either.

That’s why using your competitors’ prices as guideposts is a good way to find a balance within acceptable margins for your customers. During this process, don’t forget to analyze your costs to ensure the profitability of the project.

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Pros and Cons of Competitive Pricing

Before we get into the types of competitive pricing strategies, let’s look at the pros and cons of going this route.

Let’s start with the pros:

  • Easy and without high costs: It allows you to set prices without having to make a large investment in an extensive market study. If you use several competitors that offer similar products to yours as reference points, you can be sure that their prices work in the market and that you are on the right track.
  • Reduces the risk of error: Or to put it another way, competitive pricing helps you find the right balance when setting the price without going over or under.
  • Solution for some saturated markets: There are sectors in which, due to saturation and customer behavior, looking at competitors’ prices is almost a guaranteed success. But you have to know who to look at and who to compare with. There are companies like Apple that set their prices according to a branding strategy that may not match your identity.

It’s not all good news, we also have some cons you should be aware of:

  • Loss of differentiation: The first and perhaps most important con is that betting on a competitor-based pricing strategy can limit your differentiation. You must not lose sight of who you are and what you want to convey with your product and your brand. Pricing is a powerful tool to present yourself to your customers. Don’t forget that.
  • Profit margin risk: Your costs are not the same as those of your competitors. This is a vital point when setting prices so be careful and don’t forget to keep one eye on your competition and another on your own structure and needs.
  • Dependency: Maintaining a long-term imitation pricing strategy generates dependency and can mean falling one step behind your competition.

After a competitive analysis, take a good look at your product or service to identify your differentiating point.

The 3 Pricing Options, According to Your Competition

At this point, we have three different options when it comes to creating a competition-oriented pricing strategy: set the price above them, below them, or stay at the same level.

What Happens When You Price Above Your Competitors?

After analyzing your competitors’ prices, you can decide to price your product or service higher if you see that it would be justified by the differences in your offer.

When to Set Lower Prices Than Your Competitors

If you are going to fight in a very saturated market, it may be in your interest to capture the attention of customers during the launch phase by pricing yourself slightly below the competition. In this case, you can’t lose sight of the costs. Plan your long-term strategy very well so that you don’t get your fingers caught and find that you are limiting future price increases.

Stay Where the Rest of Your Competitors Are and Match Their Prices.

The third option is to set prices equal to or similar to the competition. This is a good strategy when your differences are clear.

Competitor pricing is an option to consider when implementing your pricing strategy or when adding new products to your catalog. It is important to know where you are and where you want to go, but remember that you are not alone in the market.

Keeping an eye on what’s going on around you can be the key to your success. Analyze all the options and don’t hesitate to show the benefits of your products so that they shine in their own light.

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