Profit Killing Competitor Pricing Mistakes and How to Avoid Them | eCommerce Matters Ep. 006

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This episode covers what is competitor pricing, where retailers and commerce companies have got it wrong, price wars and what you can do to avoid competitor pricing mistakes. 

Hosts: Philip Huthwaite (CEO & Founder of BlackCurve) and Rob Horton (Product Director at BlackCurve).

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Full Episode

Podcast Summary

Introduction

The conversation revolves around competitor pricing and explores potential mistakes and strategies associated with it. The participants discuss the benefits, limitations, and dangers of competitor pricing, as well as the importance of using data and analytics to inform pricing decisions.

Benefits of Competitor Pricing

Competitor pricing can be advantageous in normal market conditions, particularly for fast-moving consumer goods (FMCG) and commoditised products. It allows companies to quickly assess the market and set prices accordingly. Additionally, competitive pricing data helps ensure fairness and compliance in pricing strategies and provides insights into whether competitors are playing by the rules.

When Competitor Pricing Works Well

Competitor pricing is most effective when the market is behaving normally, and the product is standard. It helps determine the cost base and find the optimum price for the product. For highly competitive and commoditised goods, competitor pricing sets a ceiling on the margin a company can obtain. Furthermore, it can be useful for assessing whether competitors are offering fair pricing, as it helps identify if everyone is playing by the rules.

Limitations and Dangers of Competitor Pricing

Blindly following competitors' prices can lead to margin erosion and price wars. Price wars occur when competitors continuously lower prices without significantly impacting demand. Engaging in price wars is detrimental to profitability as companies end up selling the same amount for less, resulting in unnecessary margin sacrifices. It is important for companies to be cautious about inadvertently starting an accidental price war, where each competitor keeps lowering prices in response to the others, leading to a downward spiral.

Understanding Price Skirmishes

Price skirmishes refer to tactical pricing battles based on competitor actions. In some cases, engaging in price skirmishes can be necessary to win customers or maintain market share. Companies need to use data and analytics to determine when to participate in price skirmishes and when to avoid them. It's crucial to have a nuanced understanding of the business and differentiate between products that require price skirmishes and those that don't.

Factors to Consider in Pricing Decisions

Effective pricing decisions require analysing various data sets and considering multiple factors. Companies should use sales history data, competitor pricing data, and stock level information to inform their pricing strategies. Other factors, such as delivery times, accessibility, and customer preferences, should also be considered. Integrating different data sources and leveraging technology enables companies to make more informed pricing decisions.

Moving Beyond Competitor-Led Pricing

Companies should aim to build brand loyalty and strong customer relationships to reduce reliance on competitor-led pricing. Pricing strategies should focus on fair pricing, stability, and perceived value. Becoming a price setter rather than a price taker allows companies to maximise margins and gain market dominance. The goal is to make customers choose products based on reasons other than just price.

Utilising Data for Informed Decisions

Data analysis plays a crucial role in making pricing decisions. Sales data, competitor price monitoring, and stock level analysis provide insights into market dynamics and competitor behavior. Companies should also consider external variables like weather conditions that may impact customer behavior. Utilising data and technology enables companies to have a comprehensive understanding of the market and make data-driven decisions.

Long-Term Profitability and Success

Balancing competitor pricing with value, differentiation, and customer relationships is key to long-term profitability. Avoiding unnecessary margin sacrifices and price wars is essential. Companies should prioritise a customer-centric approach to pricing, focusing on delivering value and maintaining customer loyalty.

Conclusion

Achieving pricing success involves a balanced approach that considers various factors beyond price alone. Companies should utilise data and analytics to inform pricing decisions, differentiate themselves from competitors, and prioritise customer satisfaction.