Advantages and Disadvantages of Competitor-Based Pricing

Competitor based pricing is an approach where eCommerce retailers set their prices based on their competitor’s prices and market trends, rather than considering the entire

Competitor based pricing is an approach where eCommerce retailers set their prices based on their competitor’s prices and market trends, rather than considering the entire market landscape. There are advantages and disadvantages to competitor based pricing, but retailers need solid data and intelligence to make it work.

So, what are the advantages and disadvantages of competitor based pricing? Some of the advantages of competitive pricing include controlling the competition and influencing purchase decisions, whereas disadvantages include potential loss from margins, and the strategy not working for all markets.

Read on to learn more about the advantages and disadvantages of competitor based pricing.

What are the Advantages of Competitor Based Pricing?

The advantages of competitor based pricing tend to stem from its relative ease of implementation, and understanding.

Simple and Easy to Implement

Whilst we recommend competitor price comparison software for competitive pricing, it’s not always necessary as competitive pricing is simple to understand and implement. It may take up valuable time, but once you have identified your competitors, you just need to stay on top of their pricing, promotions, and general strategy. From here, you can choose how to set your own prices in order to get ahead.

Low Risk

By setting your prices based on your competitor’s prices, you don’t need to worry about being way out there with your prices, and putting the customer off. By staying within the standard range of pricing for the market at hand, you know that customers will likely be willing to pay the asking price.

Moves with the Market

Competitive pricing moves alongside the market standard. You don’t need to worry too much about what your competitors are doing – simply raise or lower your prices to match, or better them if you see the opportunity.

What are the Disadvantages of Competitive Pricing?

Disadvantages of competitive pricing tend to fall around the fact that competitive pricing doesn’t consider other market factors. It is entirely dependent on what competitors are doing, for better or worse.

Doesn’t Consider Other Market Factors

Competitive pricing doesn’t really consider other market factors or internal factors that would ordinarily impact pricing decisions. It also doesn’t consider demand, seasonality, and the influence of branding.

Doesn’t Focus on the Customer

Similarly, competitor based pricing doesn’t consider how customers react to or perceive pricing strategies, as well as not considering consumer behaviours, customer experience, or the purchase journey.

These factors may impact the way that customers perceive your brand and products and could influence them to shop elsewhere. Pricing isn’t everything.

Strategies of Other Companies May Not Work For Yours

A key thing to remember with competitive pricing is that your competitor’s pricing strategy may not align with your own. You don’t know what their long-term goals and plans are; all you see is a price change, and changing yours to compete could be detrimental.

What are the Advantages and Disadvantages of Competition in Business?

Competition often increases demand, decreases market share, and shrinks your customer base. This competitive market can also force you to lower or raise prices in order to stay competitive, regardless of whether or not it aligns with your strategy.

An advantage of competitive markets, however, is that they can often force you to become a better business and stop relying on a convenient customer base that would be more than willing to move on.

For customers, a competitive market means more good choices at competitive prices, meaning that they are more likely to shop around, rather than relying on the same old. On the other hand, too many options could be overwhelming, making a customer leave without purchasing.

Competitive pricing plays a huge role in this as the price is a key factor in the purchasing decision for most people. A higher than average price could either make customers think that your product is of higher quality or could turn them away in favour of a lower price. The opposite is also true, lower than average prices may drive sales, but in some cases can also imply lower quality.

When operating in a competitive market, it’s important to not solely rely on competitive pricing. Consider other factors, both internal and external, to determine a suitable price that competes in a saturated market.

Competitor Price Comparison Software at Price Trakker

Price Trakker offers one of the best price monitoring software tools on the market that allows you to stay on top of your competition, but also provides market insights that help you to make better pricing decisions. Our team of highly skilled professionals will work closely with you to help you get the most out of competitor price comparison software, allowing you to get ahead.

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