Competitive pricing analysis is a crucial step for businesses selling similar products. It involves gathering and analysing data about your competitors' pricing strategies to gain insight into the market and make informed decisions about your pricing strategy.
This blog post will discuss the steps required to conduct a comprehensive competitive pricing analysis. First, let's look at competitive pricing and why it is essential.
What is Competitive Pricing?
A competitive pricing strategy helps a business adjust its pricing based on the prices of its competitors in the market. The goal of competitive pricing is staying competitive with other companies offering similar products or services in the same market.
In a competitive pricing strategy, a business typically sets its prices lower than its competitors' prices to gain market share. However, if a company has a unique selling proposition, such as higher quality or better service, it can set its prices higher than its competitors without losing market share, leading to an increase in profits. This, yet, requires a good understanding of the market and its competitors' pricing strategies.
What is Competitive Pricing Analysis?
Competitive pricing analysis is a process that involves gathering and analysing data on the pricing strategies of your competitors. The intent is to gain insight into the market and make informed pricing decisions. The goal of competitive pricing analysis is to identify the strengths and weaknesses of your competitors' pricing strategies and use that information to develop your pricing strategy.
Moreover, to conduct a competitive pricing analysis, businesses typically start by:
- Identifying their direct and indirect competitors. You can then gather data on their pricing strategies by visiting their websites and physical stores or purchasing their products. Price tracking tools like SYMSON can monitor competitors' prices and provide real-time updates;
- Analysing the data to identify patterns and trends in their competitors' pricing strategies. They look for pricing premiums, promotional, volume discounts, and bundle pricing.
- Determine their pricing strategy. They decide whether to price their products higher or lower than their competitors and at what price points to offer their products or services. They also consider product differentiation, target market, cost of goods sold, and brand positioning when developing their pricing strategy.
Competitive pricing analysis is an ongoing process that requires monitoring competitors' pricing strategies regularly. This allows businesses to stay up to date and adjust their pricing strategy to remain competitive. For example, if a competitor lowers their prices, a company may also need to lower their prices to stay competitive. If a competitor raises their prices, a business may also be able to raise its prices, and failure to recognise such opportunities could result in leaving money on the table.
Importance of Competitive Pricing for Pricing Analysis
According to research, 80% of buyers compare pricing and offers of the same/similar product by other brands before buying. This practice happens often and within less time. So, companies need to brace themselves with a clever tactic for pricing. Competitive pricing helps your brand stay on top when consumers plan to buy a product.
Moreover, with proper competitive pricing analysis, companies can increase their market share while enhancing their brand identity. Enterprises that leverage competitive pricing for their product assortment witness significant sales and revenue. You can read more about the advantages of competitive pricing for B2B companies. However, it may only be relevant for some businesses.
How to Conduct Competitive Pricing Analysis?
Before jumping to the steps, you should read a little about the 3 pricing factors of competitive pricing. Now, let's take a deep dive into understanding the steps behind developing a robust competitive pricing analysis.
Step 1: Identify & Categorise Your Competitors
The first step in conducting a competitive pricing analysis is identifying your competitors. That is, finding companies that offer similar products or services to yours and serve the same target market. Now, you may have already identified your competitors. So, you would need to categorise them.
Look for direct competitors who offer the same products or services as you. You can also consider indirect competitors who offer similar products or services but serve a different target market.
- Primary competitors: Competitors who serve the same audience as your business.
- Secondary competitors: Competitors offering a high-end or low-end version of your product assortment.
- Tertiary competitors: Competitors serving the same target audience but offering a product / service that is related to your brand's products or services are tertiary competitors. Such a group can be a potential business partner or a future competitor if they expand their business.
Upon categorising competitors, businesses find it easy to prioritise analysing direct competitors. It is a crucial step while conducting competitor pricing analysis. They can also consider secondary competition in the long term and be prepared to partner with or compete with their tertiary counterparts.
A data-driven strategy also helps to define and categorise competition. If you are a retailer selling a small number of SKUs, you can manually organise competitors. However, intelligent competitor pricing analysis is the only option for large sellers with thousands of products available across multiple pricing zones.
Aside from that, the market environment for each product is changing as other retailers' strategies shift, and new competitors enter the market. Therefore, competitive price analysis and categorisation must be recurring processes depending on the product type or market segment.
Step 2: Determine Data Quality and Gather Pricing Data
The next step is to define relevant parameters of competitive pricing data so you can start gathering the information. Here are some aspects you can consider for starters:
- Product availability: Studying the availability of competitors' stocks helps businesses price smartly. You can understand the supply of the product category and set your prices for maximum revenue or profits.
- Competitor's additional offers: To be on par with your competitors' offers is crucial. Tracking discounts, promo codes, and other recommendations will help you introduce different offers that attract your target audience. However, this, of course, depends on your product assortment.
- Price index: This aspect tracks the company's market position for a particular product category or service within a period.
As mentioned earlier, you can collect pricing data by visiting competitors' websites and physical stores or purchasing their products. Better yet, you can use price tracking platforms to collect data that monitors competitors' prices and provide you with real-time updates. To create a competitor analysis pricing strategy, you must gather accurate pricing data regularly to ensure you have the most up-to-date information.
Step 3: Analyse Pricing Data
After collecting pricing data, the next step is to analyse the data. In this step, you must look for patterns and trends in the data. This will help you identify the pricing strategies your competitors are using. For example, are they pricing their products at a premium or a discount? Are they using promotional pricing or volume discounts? Are they offering bundle pricing? Look for the strengths and weaknesses of your competitors' pricing strategies.
Moreover, you will also find different information that will help you position yourself accordingly. Understanding patterns in their data will help you anticipate their next move and prepare to stand out.
Step 4: Determine the Pricing Process using Pricing Data
The next step in competitive pricing analysis is to monitor pricing data on an ongoing basis. Keep an eye on your competitors' pricing strategies and adjust your pricing strategy as needed. If your competitors lower their prices, you may need to lower your prices to remain competitive. If your competitors raise their prices, you can also increase them. Keep an eye on market trends and adjust your pricing strategy accordingly.
Step 5: Conduct a Smart pricing Analysis using reliable AI-driven Pricing Platforms
You must follow the process to maintain accurate data to set competitive prices. But manually doing market research, data scraping, and competitive price analysis can take forever. Plus, timing is crucial in a competitive market. If a business updates its prices late, revenue and profit will suffer significantly, hurting your brand identity.
Therefore, to combat all such human errors, today's enterprises rely on AI-driven competitive pricing solutions like SYMSON. Such tools conduct competitive pricing analysis automatically and suggest optimal prices. It leverages mature data quality, collects competitor data through API and provides recommendations. Below are a few features you can typically find in a decent quality pricing platform:
- Conducts comprehensive competitive market research
- Leverages mature data quality
- Scrapes accurate data from competitors
- Provides optimal price recommendations
You can watch our videos on tracking competitors, combining business rules and much more to build pricing strategies and maintain a sustainable business process.
Do you want a free demo to try how SYMSON can help your business with margin improvement or pricing management? Do you want to learn more? Schedule a call with a consultant and book a 20 minute brainstorm session!