Running a business is no joke. From buying products from wholesalers to generating revenue and market research, there are a myriad of procedures you need to follow. The way these aspects play a crucial role in running your business, the same way you can't undermine the importance of 'pricing.' This seven-letter word may sound simple but the complexity of fixing a price on your commodities and products can be as tricky as a Sherlock Holmes plot line. Pricing is simply
defined as the process of giving a price to a product or service you sell. But various factors need to be considered before you finalize the selling price. This is where Competitive Pricing enters the game. So, what exactly is competitive pricing and how does it work? If these questions often make your head go round then today is the day you bid adieu to all these confusions. What will you find in this article- Working out a suitable price for your product can be challenging as a lot goes into consideration while making this decision. Multiple factors determine the perfect price of a commodity that makes it a hit in the market. At the same time, the business has to generate a fair revenue to
make profits out of the sales of the product. Businesses across the market use a common policy for determining the prices of their products. This policy or process is known as competitive pricing, which involves pricing your products as per the market trends and competitors' prices. The process involves analyzing the market rates for similar products before finalizing the cost of your product. A major advantage of this policy is you get an idea of how that product is performing in
the market at a particular price. Based on your analysis, you can decide if you wish to price the product more, less, or equal to the competitors' prices. You get a fair idea of a suitable price that will attract more customers to your product or service. The price you decide will impact the other aspects of your business, so it's best to make an informed decision here. When it comes to pricing the products of a business, there are ample number of approaches and techniques to choose from. But the ball often lies in the court of competitive pricing technique in a non-monopolised market. The process of competitive pricing is often preferred over other pricing techniques because This technique also doesn't fail because of the direct analysis involved. When making their final purchasing decision, internet customers consider price to be one of the most essential factors. As per several surveys, more than 90% of the buyers, both online and offline, chose price as the primary factor in the decision of buying a product or not. Furthermore, an average online buyer will
visit at least 3 websites before making their purchase, according to the e-commerce price statistics. Numbers never lie, especially when talking about sales. Given these numbers, it is obvious that online customers place a high value on cost and price comparison. They are savvy bargain hunters, so if your pricing doesn't meet their expectations, they won't think twice about choosing one of your rivals. This number and the observation from the survey has given us a solid result. Adopting a competitive pricing plan will help you maintain a steady customer base and allow your business to expand by always providing competitive costs, as seen from the perspective of online shoppers. Example of Competitive PricingComplex situations are better understood when you have a live example. Here is an example to better explain the process of competitors' pricing. With the emergence of online e-commerce platforms, shopping options have increased. Now you can buy the same product from a local store, online store, or superstore. All of these shopping spots will have different prices because of the level of exchange that was done, market shares, and perceived value of the product. For example, consider that the manufacturer's price of a cradle is $599. Now the buyers may find the same cradle at a lesser price. There are chances that another seller will be selling the same product at a higher rate as well. A customer surveys the market because of this exact reason. Now, let's analyze the three possible situations here and how the pricing is affected.
A renowned and profitable platform like Target would have the privilege of selling the same cradle at a lower price, say $565. Since the company has its stores in many locations, it can get the products at lower rates when purchased in bulk. Since large companies are more focused on generating revenue, they are less concerned about earning profit per item. This is why you often find products at a slightly lower rate from Target as compared to the local retailers.
A company may also decide to sell the same cradle at the manufacturer's cost. Now the major question arises, when other retailers and e-commerce businesses are selling the cradle at the same price, what differentiates you from them? This is where you will have to convince them by providing extra perks like an extended warranty period or super fast delivery. Since your customers will have several options, they would need a little more than the 'match price' to choose you over your competitors.
If you go to a nearby local store to buy the cradle, the prices will be higher. The reason is these local store owners offer real-time in-person services. From cradle to bike, they will adjust and customize the item specific to each and every customer. That is where most online sellers lag. Local sellers will charge you an additional amount for the extended services they offer. Companies and store owners finalize their pricing based on the services, business size, and various other factors. Some may sell you a product at a lower price while the same product would cost higher elsewhere. It all depends on the kind of service you are expecting and how much the customer is willing to pay. What is a Competitive Pricing Strategy?A competitive Pricing Strategy is a process of strategically selecting or finalizing the price points for your products and services. The selection is done based on the competitor's prices so you can generate better revenue and have more chances of wooing your potential customers. Small and new businesses do not often have proper and adequate data to study before finalizing their prices. But the competitor's data is already there in the market and studying it can provide a lot of useful information. Competitive Pricing is more common among businesses that sell the same or highly same products in the same market for a long time. The prices of such products usually reach a state of equilibrium. Types of Competitive Pricing StrategiesCompanies need to derive effective strategies for enhanced results and guaranteed revenue. What should be the price of your commodity so customers choose you over your competitors? There is no straight answer to this question. This is why different strategies are developed for businesses to fix a specific price of their service or product. As per the market standards, there are three types of Competitive Pricing strategies that are popularly adopted by many companies depending on their requirements and size. These include penetration pricing, promotional pricing, and captive pricing. Here you will find these strategies explained in detail for a better understanding. Penetration PricingThe term penetration itself gives a hint of what this pricing strategy does. By adopting the penetration pricing strategy, a business makes its way by penetrating the market.
Promotional PricingPromotional pricing strategy is adopted when a company wants to elevate its sales. It involves temporarily reducing the price of a commodity to attract more customers.
Captive PricingCaptive Pricing Strategy makes the buying of an accessory product compulsory along with the core product. The most basic example of this strategy is buying razor blades with a razor or a charger with an iPhone. The strategy is often known as by-product pricing.
Benefits of Competitive Pricing StrategiesCompetitive pricing strategies are widely adopted by companies as they assist in generating more revenue and also help to understand customer behavior. Apart from this, there are many other benefits of employing these pricing strategies for your products. Following are the benefits one needs to go through before adopting a competitive pricing strategy. Higher Success RatesA doubt will always follow while adopting a new policy. Confusion and second thoughts are pretty common. Interestingly, competitive pricing strategies have higher success rates. Experts believe that these pricing strategies work well in the market because of the involvement of psychological aspects.
Enhanced ProfitsThe chances of your product sale going up are quite high with a competitive pricing strategy. This does not mean that you always have to sell your product at a lower price than your competitors.
An analysis of pricing trends in the market can reduce your chances of losing shares in the market. You can monitor and respond to pricing adjustments your competitors make instantly with the help of competitive pricing methods, particularly those that use pricing software to record competition data in real-time.
Customer Retention
Is Competitive Pricing Strategy Right for SaaS?SaaS products are not regular grocery products or machinery that may give similar benefits. SaaS products are made to run business in a swifter way. For the same, a lot of SaaS products are built with a target to only provide services for one kind of business. Other times the SaaS product can be offered with a customisation option for each business buying it. This is why competitor-based pricing may not be the best pricing model for many SaaS enterprises. It can be used in conjunction with another pricing model, but it cannot be the only pricing metric employed. The major drawback is that your pricing strategy is reliant on that of your competitors. The value you provide for your customer is not equal to the price. Your product offerings won't be represented fairly, and the value of your goods will decline as a result of the clamor. Your customer might prefer your competitor's product at a similar price if you are not viewed as having value as a product. Additionally, you would not know why a specific combination of features is supplied in a package at a given price since you lack price intelligence. When used alone, competition-based pricing is a bad case of plagiarism and will only help you stay in the market for a brief period. How Does Competitive Pricing work?The best way of implementing a competitive pricing strategy is by hiring an expert. Even then you must know about the process of devising a pricing strategy, which includes its working mechanism as well. Data Gathering and Quality CheckGathering relevant data is the first step in implementing a competitive pricing strategy. Experts believe that fresh data gives the best results. So, the data should be collected at least 2-3 hours before repricing. Collecting the data once is not sufficient. You have to regularly pool information for guaranteed results. Competitors AnalysisYou can learn a great deal from your competitors. Analyzing the strategies adopted by them is often beneficial because it says a lot about what’s working in the market and what is straightaway rejected by the consumers. Categorizing the competitors in this manner makes the process less tedious and you are able to collect variable data. The best way of studying your competitors is by classifying them into three categories: Primary, secondary, and tertiary. Online ActivityTracking your competitors’ online activity will assist you in knowing the price range they are targeting for their products. You can then decide the price for your products based on the pricing strategy you wish to adopt. Challenges Faced with Competitive Pricing StrategyJust like a coin has two sides, if strategies have pros, they will have cons too. Competitive pricing strategies are highly preferred by the owners of businesses. But it is equally important to consider its downsides before entirely relying on the strategy.
Try Deskera For Your Business Sign up for a free trial today! How Can Deskera Assist You?Deskera Books can help you automate your accounting and mitigate your business risks. Creating invoices becomes easier with Deskera, which automates a lot of other procedures, reducing your team's administrative workload. Deskera BooksKey TakeawaysAdopting a pricing strategy helps in determining the most adequate price for a commodity or service. It keeps you updated with the market trends that are always changing.
So, if you are confused about the pricing of your products, relax and give the Competitive Pricing Strategy a chance. It is popularly adopted in the market by many businesses. Related ArticlesUp Employee Retention by Offering Benefits Businesses may retain their best employees and maintain productivity bystrategically implementing new employee retention strategies. Workflow can beseverely disrupted by the loss of even one employee, and it might take some timefor the remaining staff to get things back on track. The extra expen… Deskera BlogNalini12 Smart Ways to Never Run Out of Cash as a Business Owner Cash flow is one of the top 5 issues for small businesses of all sizes. 60percent of unsuccessful SMEs attributed their demise to cash flow. One of a small business owner’s biggest worries, and regrettably one of the mostfrequent, is running out of money. Another widespread misunderstanding is th… Deskera BlogDeskera Content Team7 Business Financing Options—And When You Should Consider Them 66 percent of small firms report having financial difficulties, with 43 percentsaying that paying operating expenditures is the biggest problem. The saying you must spend money to create money often holds true in the world ofentrepreneurship. You need to secure capital to launch your firm after y… Deskera BlogDeskera Content TeamWhich is setting a price for byPenetration pricing strategy
Sellers enter the market at a lower price point to generate demand and a consumer base and then increase prices once they are established.
Is setting a price for by products in order to make?By-product pricing sets a price for by-products in order to make the main product's price more competitive. Product bundle pricing combines several products at a reduced price. Explain how companies find a set of prices that maximizes the profits from the total product mix.
How do you make a competitive price?4 Ways to Price Your Products Competitively. Measure Your Costs. Before pricing your products using any type of strategy, it's important to have an understanding of the costs of the products. ... . Study Your Competition. ... . Consider Selling Below Market Value. ... . Offer Incentives, But Not Too Many.. Is setting a price for products that must be used along with the main product such as blades for a razor?Captive pricing happens when an accessory product is necessary to purchase in order to use a core product. Classic examples of this include products like razor blades for razors and toner cartridges for printers. This is also called by-product pricing.
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