What is Competitive Pricing: Strategies, Benefits, and Risks for Success

Competition has reached unprecedented levels in many industries, like retail and fast-moving consumer goods (FMCG). Almost all brands in these spheres are feeling the effects and having to adjust their marketing strategies and pricing tactics to keep up with their rivals.

Competitor-based pricing is one of the most proven techniques to remain relevant in these challenging times. With the help of retail competitor analysis solutions, like Assosia’s pricing tool, this method helps brands enjoy more sales, revenue, and a stronger standing in the market.

But what is competitive pricing, exactly? Read on for a full explanation.

Essential Competitor-Based Pricing Strategies for FMCG/ Retailers 

For a deeper understanding of what is competitive pricing in business, it is important to understand the various methods in which this strategy can be applied. Here are some examples:

• Price Matching: This is one of the most common types of competitor pricing. It is when a brand adjusts its prices across selected products to match those of a local or major competitor. This is a common technique in the supermarket sector, for example, where big brand stores will ensure that popular goods are the same price in their stores as in their leading rival locations.
• Penetration Pricing: With this technique, a company starts off the sale of a new product or line of products at exceptionally low rates or even opens its business with uniquely low prices. It then gradually increases costs later on once it has established its market share and acquired a certain amount of loyal customers.
• Loss Leader Pricing: A “loss leader” is a product that a company makes a loss on due to its very low price (or even giving it away for free). Companies may sell several products at a loss like this to attract customers and encourage them to buy other items, which helps them recoup the losses and provide profit. 
• Price Skimming: Lastly, price skimming is almost the opposite of the loss leader technique. With this approach, new, special, or otherwise innovative products have high prices to start with, which then reduce over time. The idea is that early buyers will pay the high price, and those on lower budgets will be drawn in overtime as it drops.

Benefits of Competitor-Based Pricing 

Countless brands employ competitive pricing. That includes large and small online retailers, hospitality companies, food and drink firms, and many others. They do this because competitive pricing delivers remarkable benefits when performed well and backed by helpful tools like Assosia’s price tracker.

• Increased Traffic and Customer Acquisition: The vast majority of people want the best prices for the products they buy, and they will go wherever price tags are lowest. Both physical and online stores are almost guaranteed to see more traffic and better acquisition rates by keeping their costs competitive.
• Prevention of Market Share Losses: At a time with so much competition, even the largest and most successful firms cannot take their market share for granted. They could rapidly lose customers and revenue if their rivals become more appealing. Real-time competitor price monitoring, available with Assosia, helps firms maintain their position. With the help of competitor pricing analysis, businesses can refine their strategies by continuously assessing the market dynamics.
• Building Brand Reputation: Competitive pricing strategies and tools help businesses identify prime opportunities to reduce prices and raise them at the right moments. This helps build brand reputation and establish a customer perception that the company is fair and measured in its prices.
• Adaptability to Market Changes: Markets are dynamic. Prices constantly shift up and down in relation to supply, demand, and other metrics. You have to be able to adapt accordingly, dynamically adjust your pricing to suit the market at the moment, and gain an advantage over your rivals.
• Strategic Market Pressure: Competitor pricing is not just about responding to competitors’ actions. It is also a way to influence their actions, set your own standards, and exert power over the market as a whole. Strategies like price matching or loss leaders, for example, can impact costs across your entire niche.

Actionable Methods Using Real-Time Competitive Data 

Competitor price tracking delivers the most accurate, real-time competitor price data in a centralised, easy-to-use platform. It tracks price information across numerous sources and channels, keeping users informed about rival price hikes and drops for the products they sell. There is no better tool to use to stay ahead of the game in your own competitive pricing strategy.

Some of the methods you can utilise, leveraging Assosia, are:

• Promotional Monitoring: Keep a close eye on your competitors’ promo and sales strategies, and plot your promos accordingly. This is invaluable in fields like retail and e-commerce for brands to avoid difficult drops in sales when their rivals suddenly slash prices.
• Market Benchmarking: A big part of understanding what competitive pricing strategy is and employing this technique yourself is knowing market benchmarks – average price ranges and other metrics for your products. Assosia offers benchmarking analytics to highlight competitive price adjustment opportunities.

With your own sales data, historical market data, and a powerful, proactive price tracking solution like Assosia, firms will find it easier to make smart, informed price decisions.

Potential Risks and Mitigation Strategies 

There are competitive pricing advantages and disadvantages to acknowledge should you adopt a competitor-based strategy. While it may bring benefits in sales and customer acquisition, it also brings challenges, such as:

Price Wars

A price war is essentially when competitors across an industry continually compete for the lowest prices, repeatedly undercutting their competitors in pursuit of more market share. While this may seem obvious to attract more customers, it can eventually lead to losses or dramatically decrease your profit margins.

Mitigation

To avoid falling into the traps of price wars, do not make undercutting your only strategy. Use other tactics and non-price competition factors – like having great service or loyalty programs – to elevate your business and make it more appealing.

Margin Erosion

This is the phenomenon whereby the amount of profit you can make per sale reduces over time due to various factors, like rising market prices and strategies such as undercutting. It can be devastating to a business and even put an end to smaller companies that have to strike the right balance between competitive pricing and profit margin protection.

Mitigation

To avoid such issues, know your budget. Understand your income and expenditure, and calculate what you can realistically afford regarding profit margins per product. Use competitive pricing strategies like loss leaders to draw in more customers without cutting prices across the board. Additionally, try to balance pricing decisions in line with your sales figures.

Ignoring Internal Factors

Too often, brands are so focused on their product prices and keeping up with or ahead of their rivals that they become blinkered and lose focus on other factors that are just as important. They might, for example, repeatedly undercut their competitors to retain market share, only to find that they no longer have enough income to cover payroll costs.

Mitigation

To avoid this problem, do not lose sight of the broader picture. Yes, you need to focus on your sales data, customer acquisition rates, and competitor prices, but many other aspects are involved with running your business. Use reliable solutions to guide you, like Assosia’s price tracker and other elements of your tech stack, to balance price decisions with internal cost requirements.

Brand Damage from Low Pricing

While it might seem that keeping costs low can only be a good thing in the eyes of your customers, that is not necessarily true. People appreciate inexpensive products but also develop certain associations with those products and their brands. If your goods are too inexpensive, people may feel they lack quality or that your brand is not a “premium” or credible provider.

Mitigation

Never forget your brand’s positioning. If you want to be seen as more of a premium or luxury brand, you have to have prices that match. That may mean you will have to allow rivals to undercut you on certain products, but you can harness other methods to retain and acquire more customers, like loss leaders and price skimming.

Leveraging Competitive Intelligence for Pricing Success 

Competitor-based pricing is a go-to technique for many companies because it has historically proven to deliver success. It is one of the most effective ways to keep up with your rivals and remain relevant in the eyes of your customers. However, like any other technique, competitor pricing is only as effective as the people making the price decisions, as well as the tools and data behind them.

That is why investing in reliable price-tracking software like Assosia is crucial, as it delivers real-time insights and precise market data. Assosia enables retailers, FMCG brands, and others to make the most of competitive pricing. Learn more about our platform today, or get in touch with the team to discuss your situation.