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Overview of Competitive Pricing
Definition of
Competitive Pricing
What is Competitive Pricing? Competitive Pricing is a type of pricing strategy where a business sets the prices of its products or services largely based on the prices of similar offerings from its competitors. Instead of primarily focusing on internal costs or the perceived value to the customer, companies using this strategy closely monitor the competitive landscape. Prices might be set at, slightly below, or slightly above competitor prices, depending on the company's market positioning goals and product differentiation.
Activities Related to
Competitive Pricing
Here is a list of Competitive Pricing related activities:
Conducting regular market research to identify key competitors and their pricing, Analyzing competitor product features and quality relative to price, Setting price points based on strategic goals (e.g., price leadership, matching, or undercutting), Monitoring competitor reactions to price changes, Adjusting prices in response to shifts in the competitive environment, and Balancing competitive positioning with internal profit margin targets.
These activities help businesses stay relevant and attractive to price-sensitive customers in competitive markets.
The Importance of
Competitive Pricing
Competitive Pricing is important, especially in markets with many similar products or services, because it can be a key factor in attracting customers and maintaining or growing market share. It helps prevent a business from overpricing its offerings (leading to lost sales) or significantly underpricing (potentially leaving profit on the table or triggering price wars). While it keeps prices aligned with market expectations, businesses must also ensure their prices still cover costs and contribute to profitability. This strategy requires ongoing monitoring of competitors and can be very dynamic.
Key Aspects of
Competitive Pricing
Market-Oriented
Prices are primarily driven by what competitors are charging, reflecting market conditions.
Price Positioning
Businesses can choose to price at, above (premium to competitors), or below (discount to competitors) the prevailing market rates.
Reactive Nature
Often requires businesses to react to competitors' pricing moves to remain competitive.
Risk of Price Wars
In some industries, aggressive competitive pricing can lead to price wars, eroding profits for all players.
Concepts Related to
Competitive Pricing
Competitive Pricing is one of several Pricing Strategies a business might employ. It contrasts with Cost-Plus Pricing (which focuses on internal costs) and Value-Based Pricing (which focuses on customer perception of value). Effective competitive pricing requires good market research and an understanding of product differentiation and profit margins.
Competitive Pricing
in Action:
The Adventures of Coco and Cami
Coco and Cami check out what other sandwich and coffee shops are charging. Professor A explains Competitive Pricing and how it helps them set prices that attract customers.
See how our entrepreneurs learn to balance being competitive with making sure they still cover their costs and make a profit for their new businesses.