What is competitor-based pricing?

Competitor-based pricing is a strategy where the price of your product or service is determined based on your competitors' prices. This approach involves monitoring and analyzing the prices offered by your competitors and then setting your price relative to this information.

When using this pricing strategy, you must continuously monitor your competitors' behavior, which can be a significant task if done manually. By keeping an eye on your competitors, you stay updated on the market and understand what your customers are willing to pay for your product based on this data.

One disadvantage of this pricing strategy is the risk of emerging price wars. This happens when competing companies continue to lower their prices based on their competitors' pricing. If a company isn't careful, it can quickly harm its business and supplier relationships.

The purpose of this pricing strategy is not necessarily to set your prices lower than your competitors. You can also set the price higher to signal high quality or exclusivity, while the lower price often helps attract more customers to your business, potentially leading to more products in their shopping carts.

When you raise your prices instead of lowering them, you can also contribute to the opposite effect of a price war. Here, you help push market prices up instead of down. With PriceShape, you can target the highest possible profit within a specific profit range.

When is it relevant for me as an e-commerce business to use this strategy?

An effective pricing strategy should always consider your competitor-based and internal factors to maximize your company's revenue and achieve competitive advantages.

Therefore, knowing your competitors' prices is important to keep up with market trends. If you find yourself in the scenarios below, it is especially important to use Competitor-based pricing:

When the market is price-sensitive: Competitor-based pricing can be good if very price-conscious customers characterize your market. Using this strategy, you can attract and retain customers in the competitive market by offering competitive prices.

When your product is substitutable: It is important to know your competitors' pricing if your product has multiple alternatives or substitutes.

When launching new products or services: Competitor-based pricing can help you determine an appropriate price position when introducing a new product or service.

When there are changes in the competitive situation: If there are changes in the competition, such as a new competitor entering the market, it can be a good idea to review and adjust your prices accordingly.

When should you not use this strategy?

As mentioned earlier, knowing how your competitors' prices look to keep up with market trends is always relevant, but there are exceptions. A Competitor-based pricing strategy may not be most optimal if you find yourself in one of the situations below:

Using a value-based pricing strategy may be more appropriate if your products are in the premium segment and focus on delivering exclusive and luxurious goods.

Competitor-based pricing may be less relevant if you operate in a niche market where the competition is limited. Focusing on other factors such as value-added, quality, or specialization can effectively determine the price in these cases.

If your company has strong differentiation and a value focus compared to competitors, it may be more advantageous to use a strategy that focuses on communicating and charging a price based on that differentiated value.

Implement the strategy effectively

We can assist you in implementing a competitor-based pricing strategy based on the most optimal data. Our tool can easily give you an overview of your competitors and their prices. With real-time updates, you can quickly identify changes and adjust your prices to remain competitive.

We can help you establish advanced rules and pricing strategies. These can define price points, thresholds, discount rules, and other parameters to automate pricing based on your competitor's data.

Lastly, we can help segment your products and apply differentiated pricing strategies based on product categories, brands, or other factors. This allows you to tailor prices to different segments of your customers and competitors.

Read more about how we at PriceShape can help you here.