Pricing

The Ultimate Guide to a Competitive Pricing Model

October 7, 2021

What is the definition of Competitive pricing and how does it work?

Competitive pricing is a pricing model whereby your prices are set in relation to your competitors’ prices. Competition-based pricing only focusses on public information about competitors’ prices and not on customer value. This pricing model is thus different than other pricing models such as customer value-based pricing or cost-plus pricing. These pricing model analyses other factors, such as the willingness of customers to pay for something or production costs.

However, in practice we see that companies want to make a combination between competitive pricing and other pricing strategies to find the best balance to avoid a “race to the bottom” and to stay competitive on the most valuable products.

A strong competitive pricing model relies on quality research. When you thoroughly understand how your competitors are pricing their products, you have a solid basis for pricing your own product or service. Competitive pricing is a great first step in finding the best solution for your product or service.

The market research gives you a solid foundation and this pricing model is also relatively easy to calculate, quick to implement and relatively low risk with SYMSON. Once you thoroughly studied the competitors in your market, you will have four different routes to go.

Pricing options in relation to competition

Price below the competition – Customers love low prices. Grabbing the attention of customers with (relatively) low prices is an excellent way of attracting customers. However, when doing so, remember that you have a bottom line and that you should have a margin on your products after the price reduction.

Premium pricing – Pricing above the competition could be a great strategy for you if your product is better than of the competition. Or, if you add more service to the product. However, there should always be a valid reason for you having higher prices than competitors. Maybe your product has more features or new improvements or an excellent customer service, all could be valid reasons. A good example of premium pricing is Apple. They can pull this off because their brand is known for their high-quality products and service. .

Price matching – If you match the price of your competitors’, you should either have a better product or a better marketing strategy to attract customers to buy from you instead of from your competitors. If you nothing to stand out from the competition, then you have the risk of losing (a part) of your business.

Price positioning – Here at SYMSON we have noticed that some businesses do not really want to position themselves as the highest or lowest. Instead, they want to position themselves as the third cheapest option for example. In this case, they can opt to always be the 3rd cheapest option in the market.

With the right knowledge on your competitors’ pricing, you can make the right decisions and that are logical within the market context.

What companies use a competitive pricing model?

Most companies use some form of competitive pricing model. Even very simplistic companies and start-ups use some form of competitor analysis to determine their position in the market. However, companies have different kinds of pricing options.

For example, there is a Makita drill set which is sold across different platforms on the internet. Although it is the same set, websites have different selling prices for it. Ranging from only 205 euros to 299.95 euros. The website with the more expensive Makita drill is more than 46% more expensive. Both companies offer the exact same product at a totally different price point, so they both choose for a different pricing while they have the same knowledge about the competitors’ prices.

Competitive Pricing Example

What are the advantages of a competitive pricing model?

Higher success rate – A competitive pricing strategy can help your business grow tremendously and the results are usually evident after a short period of time. Also, this pricing model gives you more insights into your competitors, which gives you a better understanding of the industry and your position in it. To save you from unfortunate results, SYMSON can help you with tracking all the competitors’ prices and having the right response to them.

Prevent market loss – A competitive pricing model allow your business to regulate your position in comparison to your competitors so that you have less chance of losing market share.

Improve profit – A competitive pricing model doesn’t always result in you having to choose for the lowest price possible. If you have a great value proposition to your customers it could be better to price your significantly higher such as in the Makita drill example.

Efficiency – A competitive pricing model is, in comparison to other pricing models, easy to calculate, implement and foremost low-risk, if done right.

What are the disadvantages of a competitive pricing model?

Data driven – A disadvantage of a competitive pricing model is that it performs best with the most up-to-date data of your competitors. It thus requires some time and effort to keep up with your competitors, especially if you have a lot of them or a lot of products.

Losing focus – If you solely focus on your competitors’ price, you may risk selling at a loss or not optimizing the margin. Instead, try to compete on quality and added value for long term success. Or try to combine multiple pricing strategies in SYMSON.

Competitive pricing example symson

How to successfully implement a competitive pricing model with SYMSON

SYMSON can help you with implementing a competitive pricing model, to maximize profits and to and to automate mundane tasks. By making use of Machine Learning models & AI we help pricing and data managers with improving your prices and making better demand forecasting predictions. We do that in the following set up steps:

  1. Setting goals – Determine what you want to achieve with your pricing, do you want to optimize your margins, gain market share or something else? Everything starts with knowing what you want to achieve.
  2. Choosing the right pricing model(s) – SYMSON helps you with determining the right pricing models for your goals. In collaboration with you and your stakeholders, we will choose the right models for your specific goals, business and industry.
  3. Putting the software to work – SYMSON uses Machine Learning models and AI-powered technology to analyse everything for you. These are not just buzz words. The software can monitor the competitors’ prices 24/7 and able to make the right decisions immediately if the prices of your competitors change. This automation of mundane tasks gives you time that can be spend on something else.
  4. Reviewing the first results – The programs work for you and do not replace your work completely. The software gives you suggestions on how to optimize even more and you are then able to implement new pricing strategies.
  5. Optimize for business goals– In the end, with all this knowledge and the revision of initial results, you can optimize your margin fully and maximize your results.

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