Benefits of competitive pricing
We already mentioned in the earlier paragraph the biggest benefit of using competitor pricing - you know your place in the market. But let’s think about it from the research perspective.
Competitor pricing basically gives you an (almost!) ready-made framework for estimating your own prices. Instead of conducting elaborate market research or testing multiple pricing models, you can quickly get a sense of what pricing models and strategies providers of similar products or services have. This speeds up the decision-making process and can make it easier and faster for you to enter the market. This strategy can be especially useful for new businesses that are trying to gain a foothold in the market and don’t have much data to work with yet.
Additionally, positioning your product prices close to your competitors’ can make customers more comfortable. They might already be familiar with the price range and accept it, so there’s a higher chance they might want to try out your product or service if your prices are competitive.
Disadvantages of competitive pricing
However, there are also some downsides to relying solely on competitor pricing. The main one is that unfortunately, you most likely won’t be able to find out everything that comes into their pricing - such as their overhead costs. That means that it might turn out that you can’t afford to sell your product at a lower price than them without significant losses.
Second, competitor pricing doesn’t take into account the unique value or features that your product might offer. If your product or service has unique qualities that set it apart, you could potentially charge a premium for it—but you’d miss out on that opportunity if you base your price solely on what competitors are charging.
So here we recommend first researching and estimating your product's value and only using competitor pricing to adjust the prices rather than making those a deciding factor.
7 steps to implement and use competitor-based pricing strategy
The last thing we’ll look at is how exactly you can use competitor pricing to determine the prices for your products. Be prepared you’ll have to do some research here - but the effort will be more than worth it as you will have all the data you need to determine your own pricing.
Identify your main competitors
The very first thing you need to do is figure out who your competitors are. This may seem simple, but it’s important to focus on companies that are similar to your own in terms of size, target audience, and product features. If you, as a newly launched SaaS company would try to match the price range of a company that is already on the market for 7 years, that could only end up in you suffering losses. So instead of comparing yourself to the big and well-known brands, focus on brands that are of similar size.
Research their prices
After pinpointing who your main competitors are, your next job is to investigate how much they charge for their products or services. This step will take a bit more work than just looking at a pricing section on their website. You might need to subscribe to their newsletters, go through their checkout process, or even call their sales department if the company doesn’t have the pricing available for everyone.
Looking through customer reviews is a good idea too, though from those you might only get some basic information about the pricing structure.
Compare their features with yours
With pricing information in hand, your next task is to understand what exactly customers are getting for their money from each competitor. Does one service offer free customer support, but another charges for it? Does one product have a feature that no one else offers? What features or functionalities does your product have that make you stand out from the rest? Noting down and comparing those features will make it easier to determine how much your product might be worth for the users.
Analyze your costs
Of course, you need to know what it costs you to produce or offer your service as well. This includes everything from materials and labor to administrative costs and any other overhead costs you have - such as electric bills. Plus, researching your own costs will also ensure you won’t set the price too low, and the sales won’t even cover your expenses.
Determine your price
Now that you know how much competitors charge and what your costs are, it’s time to decide which strategy you will use. Do you want a price matching your competitors’ prices? Undercut them to gain market share quickly, or maybe your product has unique features, and you can charge a premium price? With all the data you have gathered up to now, determining which strategy will be the best fit and how much you should charge for your product much smoother.
Monitor and adjust to stay competitive
Our last advice - you can’t set your price and forget about it. Markets, trends, and customer preferences change. Competitors adjust their strategies, and so their price changes as well. So you should regularly review your pricing compared to competitors and be ready to adjust as needed.
Do you need a bit more guidance with figuring our up your own product prices or updating your current pricing strategy? Our knowledge and experience will come in handy here. Reach out to us through the contact field on our website, and we’ll schedule a call to learn more about your business and needs.
You could just decide on your product or service prices based on your production costs, and that’s it. But now, when so many brands are vying for the consumer’s attention, ignoring your competitors isn’t the smartest move. Analyzing their pricing data meanwhile can give you plenty of information you can use for your business and product advantage - and this way, make your offer stand out in the crowded market.
And in case you have any trouble gathering and understanding the data about your business rivals, at Valueships we can lend a helping hand - all to make your business grow.
Competitive pricing FAQ
What is a competitor pricing strategy?
A competitor pricing strategy is a pricing method in which a company decides how to price its products based on the prevailing market price and what competitors are charging. For this strategy, brands have to gather competitor data, analyze it, and then compare it with their own product data.
What are the advantages and disadvantages of using a competitor pricing strategy?
Competition-based pricing strategy gives you plenty of data on the market, rival companies, customer preferences, and the competitive landscape in your chosen sector. With the data, you can then price your products in a way that allows you to attract more people to your brand and stay competitive.
However, you shouldn’t rely solely on the data you get from analyzing competitors’ pricing strategies but also include your product value in the price estimation, as otherwise you might be losing profits.
How can competitive pricing help a business stay competitive?
Implementing a competitive pricing strategy helps businesses find out how their products are priced compared to the rival brands and find the ideal price point that brings more people to their product or service rather than to the competitors' products. Plus, competitive pricing can also boost marketing strategy efforts, as business owners know what their competitors are offering and what are their own strong points they should promote.