Gone are the days when you could sit behind closed doors, bury yourself into the depths of the cost and features of your product, revel in the premium quality of your product, set a price which would justify all the sweat and grime which went into shaping your dream, launch your product and then expect customers to line up at your doors in demand.
Not any more! This is an era where the market is brimming with suppliers and customers are flooded with data. Your potential buyers are over informed about the endless list of options available in the market, all thanks to our technology and internet. The shopping techniques have changed and so has the mindset of the customers. Online purchases are slowly taking over the habit of going shop to shop physically to analyse the quality and price of the products. Now, at the click of the button we get competitive prices and features of various suppliers in the market. The customers are attracted to discounts, offers and various other perks that are thrown at them by way of striking deals, attractive combos and too-tempting-to-be-ignored coupons.
So, the question here is how do we set up a price that attracts enough customers to boost sales and at the same time, covers up our costs and brings profits. Well! The answer here is the new term doing rounds these days in the world of business– The Competitive Pricing.
What is meant by competitive pricing?
The term can be defined as strategy in which prices are driven by the prices of rivals in the market rather than being driven by the cost of production and overhead expenditures. The term may have gained popularity in recent times, but the strategy used has been there for decades or as far as we can think of about business and economics.
As a new entrant, when you are launching your product in a market where there are already many players, pricing your product could be a Herculean task. Price your product too high and the customers immediately turn their attention to other products with similar features and lower prices. Price your product too low and the customers easily question the quality of your product and also you compromise on the revenue and profits. The best alternative in such market scenario would be competitive pricing or market oriented pricing, provided the products are homogeneous or related to daily needs or where the market is highly competitive, Now-a-days, even big corporate companies implement competitive pricing strategy when they launch a new product in an already existing market.
How do you implement a competitive pricing strategy?
To begin with, a detailed marketing analysis and a solid data collection system need to be set up so that you get an in depth, immediate and up-to-date record of all your competitors’ movements regarding prices. There are various price tracking softwares available in the market. Choose one that gives you the best service and suits your needs. With the help of these softwares, you will be able to get hold of detailed information and you can respond quickly and swiftly to any price change by the competitors in the market.
Some strategies that you can implement
Well, now that we all the data and information regarding prices of our rivals, how exactly do we go about setting the price of our product? We can fix the price either below, above or at par with our rival’s products, depending on the nature of the goods we are dealing in.
1. Prices lower than the rivals
When you are launching or dealing in a product of everyday use like groceries, stationaries or say toiletries, you have to offer best prices to the customers in order to make them shift their loyalty to your brand. There are many players in this market segment and to win over a well-established brand you will have to keep your prices a little below the top brand to gain the attention of the prospective buyers. You can also lure the customers through discount offers, coupons, lucky draws and various other schemes. Even in online marketing, this pricing strategy is helpful as the customers can easily compare prices online. However, the catch here is to keep a balance between the price and cost of production. In a game of slashing the prices, one should not go down to a level where the costs cannot be covered up.
2. Prices above the rivals
In stark contrast with the above scenario, if your products fall within the luxury sector or are a class statement for your customers, you can play with the mentality of your customers by keeping your prices slightly higher than your rivals and give an illusion of a better quality and higher standard product. Say for example, the market is brimming these days with high quality Bluetooth speakers from high end brands like Marshall, Bowers and Wilkins, JBL and so on. Now, Harman Kardan can get a grip over the market by launching an advanced version with slightly extra features and price it a little higher than the competitors. This attracts the attention of tech savvy well-to-do customers who are always on a lookout for products which are more advanced and higher priced than what their friends and relatives own.
Again, you can keep your price higher than your competitors when your brand has a reputation in the market for selling premium and unique products and you have a loyal set of followers. Take for example, Apple has a range of products which are class apart from its rivals and a loyal set of customers who are happy to pay a little extra to be a part of Apple family. Similarly, in the line of watches, Rolex holds a name in the game and its customers do not raise a brow when buying a watch from the brand by paying extra for the name.
3. Prices at par with the rivals
When the quality and features of your product is at par with your rivals, you have keep your prices also at par with them. A classic example of this scenario is Pepsi and Cola where they keep the prices at par with each other. Another example here is Colgate and Pepsodent where the prices remain more or less same. The companies here keep launching new range of toothpastes and resort to aggressive marketing to retain the loyalty of their customers and attract new buyers.
If your prices are at par with your customers, you have to resort to various marketing strategies to lure your customers. You can give them gift coupons, lucky draws, better after sale services, extended warranty and other added benefits. Only with extended marketing techniques you can attract your potential buyers towards your brand.
What are the advantages of competitive pricing?
What better advantage than the ease of being able to fix the right price by studying the competitive market rather than delving into the cumbersome task of cost and profit study. You can always use a mixed approach of studying the market pricing and comparing it with your costs, thus fixing a price which matches your competitors and gives you’re a decent cover up on your costs. With competitive pricing approach, you can play with the mind set of your buyers giving them an illusion of lower prices and added benefits through discounts, gift offers and free schemes. You can use various automated softwares for dynamic market price tracking and adjusting your prices with immediate effect depending on your parameters and standards.
The lesser talked about side
All said and done, every strategy needs to be handled cautiously and meticulously to extract the best from it. The price wars can often force you to slash prices to an extent where you may end up with volumes but the costs remain uncovered. Again, every market is different and one approach does not prove to be correct for all. You need to study your market carefully, sneak into the minds of both your rivals and your buyers, study the minutest detail and then zero in to your final decision to reap benefits from competitive pricing strategy. Small businesses may find it difficult to collect data and do extensive market pricing research to use this pricing technique.
The ending note
Competitive Pricing Strategy is an excellent approach in a market where there are many players offering similar products with more or less alike features. All you require is an updated software to collect data and information, extensive market study and research about competitors pricing, strategies and behaviours and a cautious approach to balance prices with your costs. The three keys: Information, Caution and Prompt Implementation will help you unlock the benefits of Competitive Pricing Strategy.