Why You Should Understand Your Competitors' Pricing

By Moira McCormick on October 12, 2016

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Competition is the norm, not the exception in a free market - and that competition will affect how you price.

Just take a look at the UK grocery market and how it has become increasingly competitive in the past few years. The growing strength of discount giants like Aldi and Lidl have really shaken things up. Pound shops are also gaining market share and nibbling away at the precious margins of the big supermarkets.

For consumers it is largely good news with lower prices but it leads to lower profit margins for the likes of Tesco, Sainsbury, Asda and Morrisons, who are offering a raft of incentives in order to hold onto market share.

So, whether you are selling B2B or B2C, should you be taking a very careful note of what your competitors are up to pricing-wise – and adjusting your prices accordingly to remain competitive?

Of course it makes sense to look at what your competitors are charging, if nothing else it's an important reference point. Once the big players adjust their prices, smaller companies tend to follow suit.

However, relying on a competitive pricing strategy can be risky if volume cannot be maintained or if costs suddenly rise. You need to keep your customers loyal and that often means distinguishing yourself on other factors other than price.

So, when basing pricing decisions on how competitors are setting their price, you might follow one of the following approaches:

  • Parity Pricing - pricing your product at the same level competitors price their product.

  • Above Competition Pricing – only if you are perceived as market leaders in terms of product features, brand image or other characteristics that support a price that is higher than what competitors offer.

  • Below Competition Pricing – an attempt to grab market share that requires high sales levels (and involves close monitoring of the market to ensure your price remains below competitors).

However, not all selling situations allow you to have advanced knowledge of the prices offered by competitors. While the Internet has made researching competitor pricing a relatively routine exercise, this is by no means always the case.

 

Don't be pressured into reducing prices

Just because your competitors have reduced their prices doesn't mean it's necessarily the right decision for you. You need to be confident that discounting your products and services will at the very least protect your profit and that you are not just giving your margin away in price cuts.

Reducing your prices can often be harmful to your brand, creating the impression that your product is cheaply made as well as cheaply priced. Reducing your prices should be seen as a short-term tactic, not a long-term strategic move.

 

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How to stay ahead in a competitive market

  • Don't bury your head in the sand. Find out which competitors are offering similar or identical products and services and the prices charged. Check websites, talk to suppliers. This enables you to assess if your prices are right for the market and if your products are being merchandised effectively to maximise sales.

  • Keep abreast of your costs. Before you consider raising or lowering prices review the costs involved in producing your goods or services. Look at everything from manufacturing and marketing to insurance and salaries. Assess if the prices you are charging will produce decent margins.

  • Be unique. Ensure you have a unique selling point (USP) – and publicise this uniqueness. The aim should be to find ways of making your product or service less price sensitive than your competitors.

 

Finding Your Optimum Price

Certainly you should understand and consider your competitors' prices when arriving at an optimum price for your goods. After all, competitor pricing is fairly simple, it's low risk as long as you have a solid grasp on your product's quality, target audience and cost of production – and it's increasingly accurate with enough pricing data out there to sink a battleship! Competitor pricing should be a part of everyone’s pricing strategy, without being the "be all and end all".

There are certain businesses that need to use competitor based pricing extensively, because consumers continually price compare. Yet, for most businesses, competitor data should not be the central tenet of their pricing strategy, because there are too many other variables to consider when you’re not comparing identical products.

You should remain vigilant in controlling your costs and in the event of increased competition on prices it means you need to differentiate your products and segment your customers to keep them loyal to your brand and company. Remember, you don't always have to follow suit.

 

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Sources

How to Combat the Pressures of Competitive Pricing

http://www.priceintelligently.com/blog/bid/161610/Competitor-Based-Pricing-101-The-Necessities-and-Your-Pricing-Strategy

http://www.wiglafjournal.com/pricing/2014/08/competitive-price-pressures-how-to-react-and-why/ http://www.wikinvest.com/stock/Lexmark_International_(LXK)/Competitive_Pricing_Pressure_Market_Negatively_Impact_Operating_Results

http://smallbusiness.chron.com/competitive-pricing-strategy-59220.html

http://www.theguardian.com/business/2015/jul/16/uk-supermarkets-criticised-misleading-pricing

http://www.theguardian.com/business/2015/jun/26/sainsburys-cuts-price-of-milk-to-match-discounters-aldi-and-lidl

http://www.theguardian.com/money/2015/jul/16/the-top-tricks-supermarkets-use-to-confuse-consumers

http://www.economicshelp.org/blog/11947/economics/market-share-in-uk-supermarkets/

http://www.marketingdonut.co.uk/marketing/sales/sales-techniques-and-negotiations/what-to-do-when-your-competitor-lowers-their-prices

http://www.marketingdonut.co.uk/marketing/marketing-strategy/pricing/ten-ways-to-keep-your-products-competitively-priced

https://www.entrepreneur.com/article/222528

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