In this article, we provide 9 powerful pricing techniques for you to stay competitive in your market. Add these techniques to your competitive strategy and revenue growth is sure to follow.
What is Competitive Pricing?
Competitive pricing is a pricing strategy that uses competitor prices as the primary data set to make a price decision. Competitive pricing examples include; always ensuring your prices are matched to the Lowest Priced Competitor, without selling below a minimum price (in order to protect your margin).
- Price Matching: The identification of webpages from competitors selling the same or an equivalent product in your target countries.
- Price Monitoring: The collection of prices from these identified web pages at a regular cadence e.g. daily or weekly.
- Price Analysis: The presentation of collected prices in reports or analytics to support price decision-making.
- Dynamic Pricing: The management of a rules engine to ensure your own prices are updated on your website to reflect your desired competitive pricing strategy.
For a more in-depth look at competitor pricing, you might wish to check out our ‘What is Competitor Pricing’ blog post.
If you want to take your competitive pricing strategy to the next level, read on for 9 powerful competitive pricing techniques to consider.
1. Price Matching
In this context, we’re referring to a price-matching strategy that ensures your prices always match a specific market position. If you are an eCommerce company selling branded goods that are available from multiple retailers, you should ensure you price match to the benchmark price (average market price), as a minimum.
The Google algorithm uses benchmark prices to assess your product relevancy (which affects search visibility and how much you will have to pay for your Google Ads). Therefore, the nearer you are to the Benchmark price, the more likely your product will be visible for the associated product search terms, and the less you will have to pay for Google Ads. If you are visible in searches, you have the chance to convert. If you are not visible, you have no chance of converting; it is that simple.
Price Matching Example
John Lewis is typically seen as more of a premium, UK-based, department store but employs a price matching policy to strategically encourage more price sensitive customers into their store, or on to their site. This also encourages more loyal customers to continue to buy from them.
2. Dynamic Pricing
As it is so important to ensure your Benchmark price position is maintained, it is no longer enough to complete manual price changes. You simply cannot stay on top of all the pricing changes required daily without automation. Especially if you want a holiday, need to account for sickness, not forgetting all the other daily tasks that retailers have to complete.
Dynamic pricing is enabled by pricing software such as BlackCurve, which plugs into your webshop, and provides a rules engine, to always ensure your prices are updated and reflected on your website with your chosen pricing strategy e.g. always maintain the market average price. You can then ensure you will maintain the right price position each and every day for all your products, and in turn, maximise your chances of being visible to search terms and thus converting.
Dynamic Pricing Example
Two very different businesses, in two very different sectors, utilise dynamic pricing to allow them to adapt to the peaks and troughs in demand their markets.
The Trainline utilises dynamic pricing to adjust prices based on factors such as the time the consumer wants to travel, availability of seats, and of course demand.
Booking.com, who are operating in a hugely competitive space, have to make use of dynamic pricing to adjust their prices based on availability of rooms and demand. This is all driven by the high level of seasonality within their sector.
3. Free Shipping
We always recommend that a retailer’s price includes shipping for free (longer lead times are acceptable for free shipping). This prevents cart abandonment, as it removes a decision hurdle at the check-out.
Google Shopping shows the Item Price (which typically includes VAT, but excludes Shipping), and the Total Price (which includes Shipping) to end users. It is the Total Price that is primarily used by the Google algorithm to decide your search relevancy. If your shipping price is free, you never have to worry about there being misalignment, as you can simply match your pricing against the Total Price.
If your check-out structure requires the application of Shipping, and you cannot simply remove it, we still suggest that you match to the Total price, but ensure your price calculation subtracts the shipping cost, so in this case your Item Price may be different from your competitors, but your Total Price remains relevant. Being relevant with the Total Price will mean you keep that higher search result position (relevancy). As we have said, a higher search result position improves your chance of a conversion.
4. Penetration Pricing
Penetration pricing is a pricing technique that involves setting a low price versus your competitors. The strategy aims to encourage customers to purchase because of the lower price.
Used effectively, it can drive financially weaker competitors out of the market who cannot compete on price, or push them into smaller niches. It must be used with caution as if your product quality or customer service suffers as a result of lower margins, you may find your customers returning to your more expensive competitors.
It is important to note, that the Google algorithm does not however reward you for being the cheapest. The benchmark price is the primary data point as we have discussed earlier. We, therefore, recommend if you want to use this strategy, that you consider the Lowest Competitor price instead, and match against this price position. That way, you will increase your chances of being at the top of the search results, but not be giving away too much margin at the same time.
Penetration Pricing Example
Ever since entering the UK market, Aldi has implemented penetration pricing. By offering groceries at lower prices compared to established competitors, Aldi quickly gained market share and attracted price-conscious customers.
5. Loss Leader
This involves selling a product or service at a price that is not profitable but is sold to attract customers who will likely purchase a larger basket of goods (with the other products in the basket being much more profitable). You could have a core product as the loss leader, but it comes with accessories that you charge a higher price for (perhaps you sell the shower head cheaper because the decision to buy this is design-led, but for all the plumbing components you charge a higher price). You’re tapping into the fact that you have them, they’re committed to the core product, and can they be bothered to shop around.
This pricing strategy works exceptionally well if you are selling a mix of branded goods, but also sell your own brand goods offered as a “next best alternative”. Here you have the added benefit of being able to undercut the competition on the branded goods to get clicks to your website. Once you have the customer in your ecosystem, whether on your website or in your email database, you can then upsell your own brand goods, which will likely have a much better margin, as you own more of the supply chain.
Loss Leader Example
When Amazon’s Kindle was first introduced, it was done so as a loss leader. The purpose behind this was to establish Amazon as the go-to place for e-books and digital content. The strategic reason was that they then made up for the loss made on the Kindles by selling large numbers of e-books, at significant margins.
6. Psychological Pricing
Do your prices look random? Lots of £44.76 or £109.22? Consumers have been trained to prefer Charm Pricing. There have been countless studies on this, and despite it making no sense when you think about it when you drill into it further, our conditioning means retailers should take note. Low-priced products should be rounded to the nearest 99p. Higher priced products should be rounded to the nearest £9. At £9.99, buyers associate the price closer to £9 than £10 even though it is only one penny less. Similar strategies are used for larger amounts.
It also prevents cart abandonment. As we have been conditioned to see these prices as consumers, any odd prices, stop us in our tracks and make us think, “Is there something wrong with this product”? So not only can you achieve more margin, but it aids conversion at check-out, so make sure your prices are pretty!
Psychological Pricing Example
With this being a super simple pricing technique, you see examples of this across all B2C and B2B environments. An obvious example of this is ASOS who price many of their products at just below “whole numbers”, meaning a product that could be £10 is priced at £9.99.
ASOS also successfully utilise tiered pricing, where they offer similar styled products at different price points, to appeal to different consumers and create perceived value across their consumer based. Time-limited discounts are another technique employed, to create a sense of urgency around making a purchase.
7. Price Change Frequency
Experiment with price change frequency i.e. the days of the week when your competitors are changing prices. With competitive pricing tools such as BlackCurve, showing you the days of the week your competitors are changing prices, it is easier than ever to either exploit the competitors that are not using price automation (seen as those competitors changing prices at a lower frequency), or those only changes prices limited times a week. Turn on auto pricing every day, and you will become much more price relevant on the days in between your competitors, meaning higher conversion for you to win market share.
Price Change Frequency Example
Something we are all aware of and most of us are affected by it week to week, is petrol stations implementing price change frequency. Typically, petrol stations will change their prices throughout the day/week based on demand, oil prices, and in the cases of supermarket petrol stations, to come in cheaper than their competitors.
Bundling involves grouping products together that your consumers would typically buy together, as an incentive, offering customers a discount if they buy all products together for example a 10% discount.
We see a lot of our customers creating specific SKUs to organise this, so the performance of this product can be tracked against the individual counterpart. The intention is to track the difference in average basket price at check-out, and if this amount is increasing, you’re onto a winner.
Many TV and broadband providers are great examples of when bundling is a core pricing strategy. Sky being a specific example of this, creating offers around bundle packages that combine TV, broadband, and phone services. These packages often come at a discounted price compared to purchasing each service separately. By adopting bundling, this encourages customers to choose comprehensive services and enhances customer loyalty.
9. Promotional pricing
Even the richest amongst us would likely say they love a bargain! Offering a discount on products versus your competitors is an excellent way to grow revenue. We recommend the most effective use of this application of a promotion, is to offer it on products that you’re struggling to shift (poor/low selling lines) or have excess stock. If you opt for blanket discounts across the board, you will be eroding the margin on successful products unnecessarily. The aim here is to increase the demand from price-sensitive consumers.
Promotional Pricing Example
There are many, many examples of promotional pricing but possibly the most relevant are the huge number of companies that discount their prices over Black Friday, Amazon are perhaps the most well-known for their Black Friday deals.
How can I monitor my competitors' pricing strategies to stay ahead of the game?
Simply set up Blackcurve Tracker, which will automatically match your competitors, monitor your competitor's prices, and provide daily pricing insights.
What are some common mistakes to avoid when using competitive pricing techniques?
Pricing without safeguards. Make sure you have safeguards in place (minimum prices) to avoid a race to the bottom/selling below an acceptable margin. In practice, we find this is normally to counteract any errors your competitors do with their own prices, rather than to avoid copying your competitors who are driving low margins to stimulate sales.
How can I use dynamic pricing to stay competitive in a rapidly changing market?
Simply set up Blackcurve Challenger. This provides a pricing rules engine out of the box, which can be configured to connect with all major eCommerce platforms, such as Magento, BigCommerce, and Shopify.