Competitive Pricing: The Advantages & Disadvantages

The fierce competition in the e-commerce industry reshaped the traditional pricing strategies which dominated the retail sector for decades. Back when the cost-plus pricing strategy was commonly pursued, price setters didn’t consider competitor behavior when making decisions. Now, competition defines the way products are priced. Competitive pricing is an outcome of this shift, and here we are discussing its characteristics.

What’s a competitive pricing strategy?

It’s a strategy where a business sets product prices in line with competitor prices.

It requires a solid data collection system due to the high frequency of price changes in the industry. Moreover, retailers must be able to respond immediately to competitors’ price moves and changes in their strategies.

In a nutshell, a competitive pricing strategy requires a detailed market analysis.

An online retailer can opt for:

• The cheapest positioning in the market
• The average positioning where most competitors are accumulated
• The highest price positioning at which luxury products are situated

When a business addresses high-end customers and offers premium products, it’s better to price the products higher than the competitors. This decision will lead to fat margins, high loyalty but also low conversions.

On the contrary, if the online retailer aims to boost its sales, it may price their products at lower prices and be the most competitive in the market.

Surely there are thousands of different price points in between these positions. Pursuing competitive pricing doesn’t mean fixing prices to a competitor’s. Rather it means taking competitor prices as a major factor when testing out different price points.

But gathering other players’ pricing information manually is nearly impossible. Rather, the top-ranking retailers either develop an in-house price tracking engine to automize it, or use price tracking software.

Real-life competitive pricing

Competitive pricing looks like this:

Like the one we’ve done here, consumers can easily conduct a price search before buying anything, and nearly all do so. That’s why these stores track each others’ prices and try to remain competitive.,

But not anyone wants to position as the cheapest.

Take a look at the Fitbit below.

Now, look at a similar company that also sells wearable tech.

In this situation, Fitbit is able to charge more for their product because they’ve worked hard on their positioning in the market. Due to their branding and promotion, customers know Fitbit to be one of the leading companies for wearable tech.

The same goes for companies like Apple, where you can buy a laptop for $2999 that does pretty much the same as a laptop for a lot less.

Takeaways

Like with most e-commerce strategies, there are advantages and disadvantages. Competitive pricing is no different.

You should now have a clearer idea of both the advantages and the disadvantages of implementing competitive pricing to your e-commerce store.

Take careful consideration of your business model and your current pricing whether this could be a viable option for your business!