Competitive pricing strategy can be a complex, time consuming process, which may seem never ending. In this article we discuss the various types of pricing strategy, and how to optimise your competitive pricing strategy for maximum effect.
What is a Competitive Pricing Strategy?
A competitive pricing strategy involves competitor price tracking, and the selection of strategic price points to take advantage of similar products or services within a specific market. It is particularly useful once the product or service has been on the market for a while, where there are substitutes, and where the product or service has reached equilibrium.
The goal with competitive pricing is to draw attention away from your competitors, and shine a light on your brand or specific product. The use of a price monitoring tool will help you to monitor your competitors’ prices, allowing you to match them, or undercut them as appropriate. It’s a great way to attract price sensitive customers, and retain customers in a saturated market.
Why Do Businesses Use Pricing Strategies?
Businesses use competitive pricing strategies to stay on top of the market, establishing the best price or promotion over similar products to gain competitive advantage and maximise both profits and shareholder value.
Competitive pricing strategies also account for a variety of internal business factors, including revenue, marketing, target audience, branding, positioning, and product development. But, they can also be influenced by external factors such as consumer demand, competitor pricing, and market trends.
It’s important to consider both your business goals, and external factors when working on a competitive pricing strategy. Competitor price tracking can be a useful tool when used correctly; don’t just tweak your prices every time your competitors make a move.
Which is the Best Pricing Strategy for Your Business?
Competitive pricing is a great pricing strategy, but it might not be the best option for your business. The best pricing strategy for your business depends on a number of factors including:
- Your industry
- Your business model
- Business goals
- Product/service type
- Market trends
- Other external influences
To give you an idea of which pricing strategies you could adopt and optimise for your business, we’ve outlined some of the most common ones below.
Price skimming is when businesses introduce new products at a high price, gradually lowering the price over time. This is great in the luxury or premium markets, attracting high income shoppers, or early-adopters. Fashion retailers and electronics companies often use this strategy.
Price monitoring tools can help you to monitor your competitors’ prices, providing insight into the market, and helping you to set prices as you gradually lower your prices.
The opposite of price skimming, penetration pricing aims to literally penetrate the market with low prices, gaining brand awareness. With this strategy, businesses are at risk of low or zero profits, however it almost ensures conversions, awareness, and loyalty, over time.
Once a business has achieved market penetration, prices can be raised to standard market pricing, or higher, depending on customer feedback.
In some markets, low prices aren’t attractive; some customers will put quality and perceptions above price. This means that both your brand and product needs to demonstrate the qualities that your target audience needs. However, these luxury price points will help you to position your business in the luxury market.
Price tracking software will allow you to stay on top of similar products in the market, ensuring that you’re setting a good price to achieve your goals. It will also help you to set a competitive price further down the line once you’re a player in the market.
Don’t take luxury to mean designer, high-end brands, however. It could be as simple as branded products instead of the supermarket’s own brand. For example, many will choose Kellogs Cornflakes over Tesco’s own brand product due to perceived quality, loyalty, and trust. Simply put, some see higher priced products as being better than lower priced, similar alternatives.
Loss Leader Pricing
Loss leader pricing involves selling one item at a discounted price, whilst encouraging customers to purchase more, e.g. 3 for 2 promotions, or buy X many products and receive a discount. This strategy usually results in a greater profit per transaction, and can help to attract new customers.
Price monitoring software can help those using a loss leader pricing strategy to stay on top of competitors’ pricings and promotions, allowing them to react appropriately.
Perhaps one of the most important competitive pricing strategies, value pricing allows businesses to set their product prices based on value, or perceived value, opposed to market trends.
However, to make value pricing work, a business must have a firm understanding of their customers needs, pain points, motivations, and a good understanding of their own brand
Value pricing is often not considered to be a pricing strategy on its own, rather one that many businesses use in conjunction with other strategies. Perceived value of a product, service, or brand is needed to set a baseline price before price monitoring can be used in other strategies.
How to Optimise Your Competitive Pricing Strategy
The next step after choosing an appropriate competitive pricing strategy is to optimise the strategy for maximum effect. We’ve outlined a few ways to optimise your pricing strategy below.
Price Monitoring Software
Price monitoring software is a huge advantage when it comes to optimising your competitive pricing strategy. It provides accurate data allowing you to spot trends, opportunities and threats.
Price Trakker offers the best price tracking software for online retailers and brands in the UK. The software allows businesses to monitor direct competitors, Google Shopping, eCommerce shopping, resellers, and helps to price dynamically.
Dynamic pricing allows businesses to stay on top of fluctuating prices, demand, and other external market factors. Depending on your pricing strategy, it can be imperative to be suitably reactive to these changes to avoid being beaten by competitors.
Pricing monitoring software can help. Our PriceTrakker-QL provides automatic price changes based on real-time changes in market demand and competitor’s prices, as well as considering your own set rules and conditions.
Learn more about dynamic pricing and our PriceTrakker-QL software here.
Sometimes, trial and error is necessary for success. A/B testing is a common marketing strategy, but it can also be used to test pricing. Hard data can be very useful to inform strategy and, whilst it might take a few attempts to get it right, it’s worth the effort to gain an effective pricing strategy.
Target the Right Products, Not All Products
Before spending too much time and energy repricing all of your products, consider choosing targeted products first starting with the most popular products. From here you can use price monitoring software to price match, or undercut competitors.
It might seem like the strategy would take longer, but your entire catalogue of products can be optimised fairly quickly, but efficiently, by prioritising.
Price based on demand
Depending on the type of products your business sells, you might find that sales increase and decrease on certain days of the week. Price monitoring software like PriceTrakker-QL can help you to automatically reprice products based on demand, optimising sales and revenue.
Competitor Price Comparison Software with PriceTrakker
PriceTrakker provides one of the best competitor price tracking software in the UK, allowing business to stay on top of competitors’ prices, promotions, and market conditions.
Optimise your competitive pricing strategy today with PriceTrakker. Get in touch with our expert team for a free demo and consultation.