Pricing strategy is an essential-yet-overlooked element of any business plan. Setting the right price for a product or service is crucial for generating revenue and maintaining a competitive edge in the market. But what aspects need the most attention to remain on the top of the market, gain maximum sales and stay competitive? In this blog post, we explain the three significant pricing factors of competitive pricing. Before that, you can take a look at the advantages of competitive pricing for B2B companies to understand the purpose of leveraging competitive pricing.

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The market behaviour shifts frequently; the economic situation, technological disruptions, competitor product prices, and customer behaviour make it mandatory for companies to adjust their prices frequently. You can find out more about how to implement competitive pricing into your pricing strategy. However, along with changing prices, other aspects help cut overhead costs and optimise profit margins. Hence, to determine the optimal prices across the product portfolio, you must comprehend the following three pricing factors of competitive pricing.

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Factor 1: Understanding the Market  

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One of the factors of pricing that companies must consider when implementing a competitive pricing strategy is understanding the market.

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What 'market' means

The ‘Market’ refers to multiple aspects - knowing your customers, competition, the overall market and economic conditions, etc. Understanding your customers involves identifying their needs, preferences, and buying habits. It also involves knowing their willingness to pay for your product or service. After collecting competitive data, you need to conduct a competitive pricing analysis to break down into meaningful insights.

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How does it help in determining product pricing?

The market factor also involves understanding competitors' pricing strategies, product quality, and marketing tactics. Such insights can help you determine how to price your product or service to remain competitive. For example, if your competition offers a similar product at a lower price, you may need to adjust your pricing strategy to stay competitive. However, the market factors of pricing are not just limited to this. You must also review the scenario against the current macro-level market condition.

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Considering the supply along with demand

Lastly, understanding the overall market conditions involves analysing the supply and demand of your product or service. Now, this may include considering the scenario from a macro view. Is there any innovation that the audience is interacting with? Is there any socio-political scenario that is indirectly affecting your industry and sales?

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Moreover, you can charge a higher price in case of high demand and low supply. Similarly, you may need to lower your costs to attract customers if insufficient demand and increased supply exist.  

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Factor 2: Cost of Product/Goods Sold (COGS)  

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What is COGS?

Another pricing factor of competitive pricing is to consider the Cost of Goods Sold or the cost of developing the product (COGS). COGS is the cost incurred to produce and sell a product or service. It includes raw materials, labour, and overhead expenses such as rent and utilities.

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How Cost of Goods Sold helps in optimising profit margins

To remain competitive and maintain profits, you must price your product or service at a level that covers your COGS and provides a reasonable profit margin. If you price your product too low, you may not be able to protect your COGS or make an optimal profit. On the other hand, if you price your product too high, you may not attract customers. The latter leads to loss of sales and revenue.

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To explain the price factor of competitive pricing, COGS or the overhead costs is one of the vital aspects that some companies ignore. Furthermore, companies must calculate their COGS and consider other factors, such as market demand and competition, to determine the right price for their product or service. For example, if your COGS is $10 per unit and your competition sells a similar product for $15 per unit, you may need to price your product at $13 per unit to remain competitive.

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With a pricing software you can set scenarios and run simulations. This way, you can prepare for any future iterations in the market or your business. Instead of assuming and relying on hypotheical scenarios. Read more to understand how demand forecasting works in SYMSON.

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Factor 3: Premium Factor or Value Proposition  

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Consider your exclusive factor

The pricing factor of competitive pricing is communicating your value proposition to the audience. What is your premium factor? What else are you providing that is setting you apart from your competition? To create a staunch and dynamic pricing strategy, your value proposition has the potential to make your brand stand out from the mainstream crowd. When done right, it attracts customers willing to pay more, making you profitable.  

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Clear communication to complement pricing

You must communicate your value proposition to customers clearly and concisely. It may involve highlighting your product or service's benefits or human value and explaining why it is worth your price. If you can effectively communicate your premium factor or the value of your product(s), customers will be willing to pay a higher price for your product or service.  

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For example, Apple is known for its high-priced products. However, Apple's value proposition is its innovative technology, sleek design, and user-friendly interface. Apple customers are willing to pay a premium price for these features because they value such exclusive benefits.

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What are the Scenarios for using AI Competitive Pricing?

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There are different scenarios where you can leverage competitive pricing to churn out optimal sales and revenue. Here are the five scenarios that you can consider:

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• Higher prices
• Price matching
• Lower prices
• Price skimming
• Key value item pricing

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You can learn more at our blog on 5 pricing scenarios to help you not lose profit again.

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How AI Pricing Software helps Setting Competitive Pricing

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A competitive pricing strategy is ultimately about finding the right balance between generating revenue and providing customer value. Considering these three pricing factors, you can develop a pricing strategy that helps you remain competitive.

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Avoid inaccuracy

However, changing prices multiple times a day or week can breed inaccuracy, inefficiency and frustration. That is because you’d need to study customer behaviour and the market closely and continuously to tweak prices. Doing this can shift your focus from other crucial aspects of the business. This is where AI pricing helps businesses to find the correct prices automatically depending on the changing market trends.

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Change prices across multiple platforms at once

Moreover, AI pricing tools like SYMSON’s competitive pricing solution maintains accuracy and your business rules to recommend and change prices across all platforms with a few clicks. Likewise, with such an intuitive pricing platform, you can automate mundane and tedious tasks in a whiff.

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In conclusion, while developing a pricing strategy, these are the top pricing factor of competitive pricing that businesses must consider. By understanding your customers, competition, and overall market conditions, you can determine the right price for your product or service. In addition, calculating your COGS and setting a reasonable profit margin ensures that your pricing strategy is financially sustainable. Lastly, by effectively communicating your value proposition, you can justify a higher price point and attract loyal customers.

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