What is Competitor Pricing?
In this article, we define competitor pricing and introduce the pros and cons of using competitor pricing to make price decisions in your eCommerce business.
What is Competitor Pricing?
At BlackCurve, we define competitor pricing as a pricing strategy that uses competitor prices as the primary data set to make a price decision. Implementing the strategy requires:
1. Competitor Matching: The identification of relevant competitors selling the same or an equivalent product.
2. Competitor Price Monitoring: The subsequent collection of the price displayed to the public by these identified competitors.
3. Competitor Price Insights: The analysis of your own relative price position against the collected prices to determine whether your own price should be changed.
Whilst there is no hard and fast rule for identifying relevant competitors, common methods are based on total competitor revenue, total competitor employee numbers, total customer reviews, total followers on social media, the total share of digital traffic, and/or total competitor product overlap.
If you sell goods in one area, such as “music equipment”, you are likely to have a specific set of competitors. If you sell goods across a range of areas, you are likely to have a huge cross-section of competitors. I do always encourage a data-driven approach to identifying competitors. It is all too easy to decide your competitors based on a “gut” feel, which could mean for example, that you miss out on identifying that little-known competitor that has been doing fantastically with search engine optimisation, so their online visibility is through the roof.
The identification of competitors is a requirement if you are collecting data directly from a competitor’s website, whether you’re doing this by manually searching yourself, or using custom price scraping software. This is because you need to say from the outset, which competitors you’re interested in. At BlackCurve, we advise against going so prescriptive in your competitor data collection if you’re selling branded goods, and that is why we collect our competitor data from Google Shopping. Once you’re truly aware of ALL the competitors, you can then start to work out who is relevant and who is not, by using the data-driven approach I mentioned earlier. Google Shopping also allows you to see ALL the competitors in one search, as opposed to having to make multiple searches to each competitor’s own website, saving you both time and money.
In this particular example, I am interested in finding competitor data for a “Bosch, DWB98JQ50B, Serie 6, 90cm, Chimney Cooker Hood”. When searching for this product, Google provides me with all the relevant matches for this particular search term.
Validation of the search term, whether done manually or collecting automatically using a Google Shopping Competitor Price Collection service such as BlackCurve, confirms that the first result is accurate as shown by this page which is accessed by clicking “Compare prices from 10+ shops”. 20 competitors are seeking my business for this particular product.
A further reason why we always recommend retailers use Google Shopping for their competitor pricing is that Google has an 86% share of the search market. In other words, it is where 86% of us start our online shopping experience, and these are the results that consumers will most likely be used for both their initial benchmarking and for any subsequent benchmarking.
Once the prices have been collected, they can then be analysed to identify your own relative position, and whether a price change needs to take place. Continuing with the Bosch Chimney Hood example, with the data loaded into BlackCurve, we can see that the majority of retailers are selling this product for between £850-£1,000. This is the market price range.
There appears to be not much price volatility for this product, with the majority of the sellers keeping their own prices consistent throughout the time period shown. What is clear, is that this is the competitive price band that is required to be successful. You can see that, as “Bradfords Building Supplies” had to make a competitor-led price correction to join this price band on 19th October (as shown by the purple line).
To be successful with competitor price monitoring, it should not be an ad-hoc process. The collection, assessment, and price decision-making have to be done on a regular enough occurrence so that you can accurately start to assess the resulting impact on your business based on your chosen key performance indicators such as sales volume or click-through. Too much irregularity will lead you with no idea if the price position you have chosen is right or not, as you will miss so much of the information.
If you have a handful of products. The process can be done manually at a chosen interval such as daily or once a week on a specific day. Any more than that, pricing software can help automate part or all of the process.
For example, competitor pricing software such as BlackCurve could automate the daily collection of competitor prices for you, and then you can manually assess based on the insights (displayed to you in an online dashboard or downloaded to a spreadsheet-based report) where you wish to make an applicable subsequent price change. Alternatively, you may wish to automate the process end-to-end, where BlackCurve not only collects your competitor's prices but also ensures you automatically maintain a particular market position, by connecting with your website.
The most common competitor pricing strategies we see, are retailers ensuring they’re always either the “Average Price” in the market or “Lowest Price” in the market, once they have identified the relevant competitors.
The Pros of Competitor Pricing
Where branded goods are available in multiple locations, if you’re significantly more expensive than the market, your customers will shop elsewhere. Conversely, if you’re too cheap, they will likely think something is wrong, i.e. it is too good to be true. Therefore, staying on top of market pricing and your market position is important to not miss out on sales.
54% of retailers are spending more than £1,000 per month on Google Ads. One of the data points Google uses to determine how much you have to spend on your Ads to get the visibility and desired page position is a relevancy score. Your competitor's price position feeds into this relevancy score. The more relevant you’re, the less you have to pay for your Ads. So, by following a competitive pricing strategy, you will directly be improving your Cost Per Acquisition (CPA), even if you’re not actively tracking the link.
The Cons of Competitor Pricing
Competitor Pricing is a lagging indicator. For you to make a price change, it requires you to wait for a competitor to make a move. You in effect then simply accept a resulting move to maintain your position or ignore the competitor's price change. Your only control is to say no.
Competitor pricing can lead to bad pricing behaviors which are not good for any of the retailers taking part. Often referred to as a race to the bottom or even top, companies end up in a cycle where they continually change prices based on each other’s price moves. This is why we always recommend ensuring you have suitable safeguards in place whether you’re setting your prices manually or automatically.
Consumers are often willing to pay more for a brand they recognise. This means that basing prices on competitor data alone, may not reflect the value that customers put on purchasing that product from you. This is why identifying relevant competitors is so important. For a strong brand of product, consumers won’t care so much about the retailer. For a niche product, the retailer brand becomes so much more important. This is also where building additional data into your price decision process becomes so important. Can you make use of your marketing data, sales history data, or stock data, for example, to show you what the right market position is for a product or even where the market can be ignored? Using these data sets also enables you to price products where you do not have a competitor overlap of any kind and ensure you’re optimising the price for all your products.
Pricing Software & Competitor Pricing
If you use pricing software to support your pricing strategy, you will save a lot of time. If you have thousands (even hundreds) of products, collecting those prices day in and day out from your competitors could become a full-time job. That’s 37.5 hours per week! Let a system take the strain.
The average office worker's annual salary in the United Kingdom is £29,609 at the time of publication. BlackCurve Starts at £129 per month for 1,000 products. It is a no-brainer!
Furthermore, you may be updating your prices manually. It only takes one wrong formula drag or visual cell reference to make an error in what price is updated on your website. It could be a long time before you notice the error. Competitor price software takes care of all the maths and reduces the chance of human error. It can be done semi-automatically by calculating the result for you to approve or upload to your website yourself. Or fully automatically so communicated directly to your website.
Summary
Competitor pricing is a strong starting point. Get the insights, assess your competitors, identify your position, and start slow. Start by manually adjusting competitor data collected automatically for you on a regular cadence. Then build in price automation to regularly maintain the position you have identified that improves your key performance indicators. Then build up additional reference data when you know that position is working, and start to challenge previous competitor assumptions to tease out more gains. Test and learn. Test and learn.