Whatever you do, you will always be competing with other businesses, but competition can have advantages. Here’s how challenging your competitors with competitive pricing can work in your favour.

Definition of competitive pricing

Competitive pricing is simply when you create product prices based on the prices offered by your competitors. Of course, that is the most basic explanation, but it can also be a very useful business and research tool. For example, if your company is brand new, you may not have enough customers to understand your core customer persona and the prices they prefer.

You can overcome this problem by researching companies that sell similar products to yours and serve the customers you want to attract. You can then aim to match or, if possible, beat their prices in order to attract these customers. This is particularly useful for SaaS pricing.

How to make pricing work for you

Developing a fundamental pricing strategy can be approached from a few different angles, including the following: 

Cost plus

This is the most fundamental approach to calculating costs. It does not take into account your competitors or even your customers; rather, it focuses solely on ensuring that you are developing a price that is consistent with sound business practices.

Pricing based on cost plus an additional markup is typically the first step in developing a basic price range, but research into the pricing strategies of competitors is necessary before settling on a price that will attract customers.

Penetration pricing

For companies that are interested in breaking into new markets, this can be thought of as a method of pricing that is competitive. Your company will, of course, be at a disadvantage when compared to well-established businesses that are already active in the market space that you have chosen to compete in.

To attract more customers’ attention, some newly established companies decide to offer prices that are purposefully lower than those offered by their rivals in the industry. Once your reputation has been established, you will have the ability to charge higher prices.

Pricing on demand as a pricing strategy

When this occurs, your prices will change according to the demand. For instance, during the summer break from school, airfare tends to be more expensive. Even though this does not directly compete with the competition, you can still learn when and by how much you should change your prices by observing how other businesses do it.

Methods of pricing that are competitive

There are a few different approaches you can take in order to make your prices competitive, but in general, you have the option of charging a higher, lower, or comparable rate to that of your competitors.

When you raise your prices, you have a responsibility to provide the customer with something that justifies the increased cost. In some instances, this may involve something as straightforward as branding and packaging (just think of branded vs. supermarket own-brand items). In other cases, there will be a requirement for a discernible benefit, such as the use of organic ingredients, an ergonomic design, or improved technical specifications.

By decreasing your prices, you can increase the value that customers receive from your brand and appeal to customers who prefer more cost-effective products or services. Going lower on permanent basis is not always a good idea. However, going lower for things like introductory prices and special promotions can definitely pay off in the long run.

Price matching refers to the practice of keeping prices consistent with those of one’s rival businesses. There are situations in which this is a perfectly reasonable choice to make, particularly if you believe that your product offers additional value in comparison to those that are sold at the same price.

Advantages in Pricing Due to Competition

 There are a number of benefits associated with competitive pricing. To begin with, it’s not overly difficult to do. It is also an accurate method of seeing what customers are willing to pay, which enables you to determine the likelihood that your own pricing will appeal to the demographic you are trying to reach.

In addition, because real-time pricing offers a framework to work within, it is relatively difficult to completely miss your mark and come up with a price that no one is willing to pay.


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