Competition-based pricing strategy
Setting prices based on the competition involves introducing e-commerce prices using competitors’ prices as a starting point.
Maria Jose Guerrero
Setting prices based on the competition involves introducing e-commerce prices using competitors’ prices as a starting point. The main aim of this strategy is to have a previous reference when defining your prices. This is especially critical for very similar products, or products that could substitute others already on the market, for which customers have already developed price expectations. This tactic can be particularly beneficial for start-up companies. To help you assess this strategy, we explain the pros and cons of using the competition as a starting point to create your pricing strategy.
Firstly, it is essential to know that within a competitive pricing strategy, prices can be set in three ways according to the objectives of the e-commerce business:
- The same prices as the competition.
- Higher prices than the competition, to position the articles as higher-quality goods.
- Lower prices than the competition, to create an impression on consumers with greater price sensitivity.
Pros and cons of competitor-based pricing
Advantages: low risk for e-commerce businesses
The main advantage is that it entails a low risk for e-commerce businesses, especially when choosing prices equal to or very similar to those of the competition. You will know right from the start that they are safe prices, that will not cause losses, and that they fall within users’ expectations. In addition to this benefit:
- This strategy leads to market equilibrium.
- It helps ensure that the e-commerce business does not lose market share to competitors.
- It enables new customer acquisition.
Disadvantages: price war
On the other hand, fixing prices that are the same or slightly higher or lower than competitors may lead to a price war. This can cause profits or customers of the companies involved to fall progressively. If the war is downwards, for example, if a brand applies prices 10% lower than its competitors, and other companies follow the same tactic, the total market price will lower. There are other potential risks.
- If all prices are very similar, the market can become static, thus preventing e-commerce business profits from rising and slowing growth.
- Other tactics should complement the competitor-based pricing strategy, to attract new customers on an ongoing basis.
How to monitor competitors’ prices
After analysing the pros and cons of competitive pricing, you may decide to introduce it in your e-commerce business. You will need a price monitoring tool to always keep track of changes in the market. This software lets you know competitors’ prices over their different sales channels, including online stores, marketplaces, price comparison sites or B2B portals. Based on data analysis, you can keep up to date with price increases or promotions being put in place to help you decide how to act.
Start by clearly defining your direct competitors. Identify your company’s pricing needs, and then implement the most appropriate tools for monitoring prices in the market. Ultimately, the aim is to define the best pricing strategy to boost e-commerce sales growth.
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