For online businesses, setting the right price for your product is one of the most important decisions involved when increasing sales. One of the biggest factors involved in setting product prices is the prices offered by your competitors.
Competitive pricing is a product pricing method based on the prices of competing businesses. This can involve repricing your products above, below or the same as your competition’s. However, usually, competitive pricing is associated with undercutting the product prices of your competitors. It’s important to choose the right method when repricing competitively – price too high and you’ll lose sales, price too low and you may end up losing money. Typically in competitive business sectors, it is the larger companies who tend to set a price leadership role that wise smaller business will follow.
Types of competitive pricing
- Below Competition Repricing - Repricing products to undercut competitors is usually used for ‘stealing’ customers from other businesses. If you are careful not to undercut so much so that you end up making a loss, then this is a great method for increasing sales. Apart from a larger customer base, another great benefit of higher sales is an increased market share. However, repricing below competition does have it’s disadvantages too. This kind of pricing strategy can create a hostile business environment with your competitors. In many cases, this will lead to price wars – not an ideal long term route for businesses involved.
- Above Competition Repricing - Online business that price above competitors are usually seen as the market leaders in their product sector. Higher pricing methods are typically used to increase reputation and brand image, or to give the impression of a premium product of higher quality and uniqueness.
- Parity Pricing - Parity pricing is one of the safest repricing methods where the business sets their product price to be the same as their competitors. When charging the same price as your competitors, it would be wise to make your business more appealing or convenient for customers in some other way. This can be the simplest thing such as a more user-friendly website design, free shipping or inviting refund policies.
When repricing competitively, it’s important not to be too aggressive in your pricing methods as this can be considered as Predatory Pricing. This involves lowering prices for the sole purpose of driving competitors out of business, which is actually illegal practise. However, offering lower prices than your competitor simply because you can afford to do so – this is a completely healthy form of competitive repricing.