As an e-commerce company in a competitive market, finding the right pricing strategy and positioning yourself correctly can be challenging. You must define your competitive advantage to set the right product prices to determine which pricing strategy is right.
Pricing is one of the most important factors affecting your profit and revenue. In this blog post, we will look closer at how you can use your competitors' data to optimize your pricing strategy and gain a competitive advantage. But first, let's dive into what a competitive advantage is.
A competitive advantage is the key to standing out in a competitive market. As a company, you can achieve this advantage by either delivering the same value as your competitors at a lower price or offering differentiated value at a higher price.
Michael E. Porter developed the Generic Strategies model, identifying different strategic archetypes. These archetypes explain how you, as a company, can gain a competitive advantage. You can either focus on having the lowest costs or differentiate yourself from your competitors by charging a higher price for your product. When defining your competitive advantage as a company, it is also important to consider your target audience. Do you want to appeal to a broad or narrow audience?
A low-cost leadership strategy involves minimizing costs throughout your value chain. This can be achieved through efficiency improvements, cost control, and economies of scale. By reducing costs, you can offer competitive prices to your customers while maintaining a reasonable profit margin. This strategy often appeals to a broad target audience as it competes on price.
A differentiation strategy involves creating unique and valuable products or services that differentiate you from your competitors. This can be achieved through innovation, quality, design, customer service, or other differentiation parameters. You can differentiate yourself from competitors by offering something unique and commanding a higher price. Differentiation is suitable for appealing to a narrow target audience willing to pay extra for special features or benefits.
So how do you leverage your competitors' data for your competitive advantage?
You need to utilize your competitors' data. How do you do that? By monitoring and analyzing their prices. By gathering this information, you can set your prices based on the competitors' pricing levels.
This data particularly benefits those utilizing Michael E. Porter's low-cost leadership advantage. A competitor-based pricing strategy is often employed where competitors' actions determine prices. Dynamic pricing is valuable in a rapidly evolving e-commerce world as it allows you to track market trends and respond quickly.
Price data, however, is one of many relevant factors in your pricing strategy. You can also examine inventory levels for yourself and your competitors. Collecting this data gives you insights into who is best or worst positioned regarding product availability. For example, suppose there is high demand for a product, and you have sufficient stock while your competitors have limited stock. In that case, you do not need to lower the price as you are the most competitive since you have the item ready for the customer.
The same applies to the opposite situation. If you notice a product has been in stock for a long time without being sold, offering a special price would be beneficial as demand has decreased, and you are losing money by storing it without prospects of long-term revenue.
It can be challenging to collect this data manually as your competitors constantly update their data. Our tool, PriceShape, is designed to help you gather competitors' prices and inventory status if this information is available. All this information is updated daily, ensuring you always have the latest data.
With this data, you can create pricing strategies tailored to your products. These strategies can be dynamic and adapt to your competitors' prices and market developments.
Read more about how PriceShape can help your business and how you can use competitor data to gain a competitive advantage.