What is competitor-based pricing?

As the name suggests, competitor-based pricing is a pricing strategy in which a company sets the price for its products after observing the competition. However, this strategy does not cover initial costs and only takes into account the selling price of the rivals’ products.

To set the price of a product using competitor-based pricing you must find the rival product that is exactly the same. So, if you want to use this strategy you must be sure to know which are the competing products. To do this efficiently you have competitor price monitoring softwares that allow you to create automatic connections from the EAN code of the products.

Competitor-based pricing is one of the basic pricing methods, along with cost-based pricing and market-based pricing. In this post we will look at the methods of competitor-based pricing.

Parity pricing with a competitor-based pricing strategy

Setting prices at the same level as the competition occurs when the difference between your product and the competition’s is zero or almost undifferentiated. This strategy can also be used in markets or verticals where products are priced in the usual way, for example: bread or eggs.

Underpricing the competition with a competitor-based pricing strategy

Penetration strategy consists in entering the market with prices significantly lower than the competition in order to gain more customers and thus increase market share. This strategy is valid in the long run, because when your e-commerce is established in the market, you will be able to raise prices to increase your profit margin.

Another strategy for pricing below the competition is discounted pricing. Simply by setting prices lower than the rest of your competitors. This is a viable method for businesses with a large number of products or physical stores of large surfaces. In order to implement this strategy without fear – be careful not to spoil the profit margin of your products.

Pricing above the competition

Setting prices above those of competitors is a double-edged sword: while in the long run you can establish your brand as a prestigious one, gain importance in the marketplace and quickly recover your investment, users may respond negatively to a price increase and that aspect will undoubtedly affect your sales.

Price skimming is a pricing strategy that consists of establishing a high initial price for a product and, over time, lowering that price to reach more areas of the market. This strategy is primarily used in the technology or video game sectors.

Focus on the competition when discerning which price to set is a viable choice. However, to do this it will be essential to monitor your market massively to know average prices, the relationship of your products with the competition or know the stock of your rivals. It’s difficult to handle that amount of data manually, so we created NetRivals, a software that allows you to track your competitors and set pricing strategies with a deep understanding of the market.