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What is Competition Based Pricing?
Companies use different pricing strategies to determine the best approach within a given market. Depending on the pricing method employed, a firm builds its entire business model. Competitive pricing proves to be an important aspect of business strategy when a company is exposed to a high degree of competition and other businesses selling similar products. In such a case, competition based pricing is a pricing strategy in which a predominant focus is made on setting a special price based on competition observation. Competitor based pricing relies on exploring a product and service in correlation to the current market price to build a strategy offering clients lower prices, which grants a company a competitive advantage.
Competition based pricing sets competitive pricing in a particular manner. The pricing strategy relies on finding the same product or service offered by competitors to determine the price of a product or service. The next phase includes several potential options. After examination of a competitor’s product or service, a company considers all the relevant factors to establish a pricing strategy offering competitive pricing. Competitor based pricing may include boosting the firm’s market share using market penetration with a pricing method providing a significantly lower price for a product or service compared to competitors. Competitor based pricing can also be used as a pricing strategy employing discounts as its primary tool. Essentially, the company offers discounts on products and services to competitive pricing.
Advantages of Competition Based Pricing
Regardless of the potential results of competition based pricing, there are particular pros and cons to the pricing strategy.
- Competitor based pricing is a fairly simple to use pricing strategy. Suppose there are several key competitors in the industry. In that case, the business can employ fair competition based pricing while comparing competitors' prices and devising good competitive pricing as an outcome.
- Competitor based pricing is considered a low-risk pricing strategy. Suppose a company has a good understanding of its product’s quality and has information concerning competitors’ products. In that case, there is little chance a business will fail in determining a fair competition based pricing model.
- Competitor based pricing can be an accurate pricing method. When setting competitive pricing, a company can use accurate information concerning its primary competitors’ products and services. Besides, getting data is fairly simple if the pricing strategy is applied in the industry with many consumers.
The pros of competition based pricing stem from the simplicity, low risk, and accuracy of the approach.
Disadvantages of Competitor Based Pricing
As with many other pricings methods, competitor based pricing has its downsides.
- Competition based pricing can lead to missed opportunities. The pricing method entails complying prices of competitors. As a result, it can distract businesses from developing new products or improving the quality of existing ones.
- Competitor based pricing is a pricing method that can result in many copies of a product or service floating in the market. The pricing method is founded on the assumption that there is the best product on the market, which others should copy. In such a case, competition based pricing can be used by different businesses, which results in many copies existing in the market, thus giving consumers fewer options.
These are the primary downsides of competitor based pricing, resulting in fewer opportunities for both a company and consumers.
Competition based pricing is a simple and accurate method of establishing a fair price in a competitive environment. However, if there are too many competitors on the market, competitor based pricing might not be the right choice for the business.
What are the advantages of competitor based pricing?
Competition based pricing is accurate, easy-to-use, and low risk.
Why do businesses use competition based pricing?
Businesses use competitor based pricing to gain a competitive advantage and offer products and services that are lower in price.