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Price: Definition, Price Point, and Competitor Prices

Price: Definition, Price Point, and Competitor Prices

February 6, 2020

Price is the amount of money given in return for a product or service.

In some cases, it refers to the amount requested by a seller in exchange for the product/service she/he offers. Selling price is another term referring to the requested amount.

Whereas transaction price refers to the actual amount of money paid for a product/service.

Price is often confused with price point, a term referring to points on a hypothetical demand curve.

Price

A, B, C, and D are price points that generate different levels of demand. In most cases, demand decreases as the price goes up (from D to A). How the demand for a product is affected by a change in its price is called price elasticity of demand.

To understand the dynamics between price, demand, and value, see value-based pricing.

Why do e-commerce businesses need to track competitor prices?

Most online stores share a large portion of their product assortment with competitors. In other words, they sell the same products.

Consumers make purchasing decisions based on an evaluation of factors such as price, delivery speed, convenience, shopping experience, etc. Various studies prove that modern consumer values price over other factors.

Increasing transparency of online prices allows shoppers to effortlessly locate the best price and urges e-commerce owners to compete on price. Without knowing competitor prices, one cannot estimate what price is competitive, and by extension, desirable.

Lack of competitor price information results in either overpriced products and lack of demand, or underpriced products that cut profit margins.



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