Navigating a competitive market requires a well-thought-out pricing strategy that can balance the need to compete while optimising profitability. In this blog, we'll delve into eight vital techniques to help develop successful competitive pricing, enabling businesses to combat price competition challenges.
However, before that, let’s understand what is competitive pricing. Understanding this will ensure some clarity about the advantages of competitive pricing.
What is Competitive Pricing?
Competitive pricing refers to the pricing strategy where businesses set their prices in line with their competitors' prices for similar products or services. The goal of competitive pricing is to maintain a competitive edge in the market by offering prices similar to or slightly lower than those of other businesses. Once you understand this, you may want to read the three pricing factors of competitive pricing that you must consider.
- How it works: In this pricing strategy, businesses closely monitor their competitors' pricing and adjust their own prices accordingly. They may set their prices at a similar level to their competitors or offer slightly lower prices to attract customers.
- Relevant industry for practice: Competitive pricing is often used in industries where competitors offer similar products or services, such as the retail or service industry. By setting prices that align with their competitors, businesses can avoid being undercut or pricing themselves out of the market.
- Not suited for all businesses: However, it is essential to note that competitive pricing is not always the best strategy for every business. Setting prices too low can lead to reduced profit margins while setting too high can result in lost sales. Therefore, businesses must carefully consider their costs, target market, and the competition before adopting a competitive pricing strategy.
Now that you know its definition and want to get started with it, you may want to read How to Conduct a Competitive Pricing Analysis.
8 Techniques for Effective Competitive Pricing Success
Here are a few tactics that you can use to create a powerful competitive pricing strategy. These will not only help you attain more customers but also help you retain optimal profits.
1. Leverage AI to Determine your Optimal Pricing Strategy
Using AI-based pricing platforms, like SYMSON, can aid in identifying the perfect pricing strategy. By blending various competitive pricing methods such as cost-based markup, competitor pricing, Key Value Items, and price sensitivity, businesses can devise a winning pricing plan.
AI assists in recognising these strategies and recommending the most suitable action. Companies employing AI-driven pricing strategies see a 2-7% boost in sales margins.
2. Customise Pricing for each Pricing Channel
Various pricing channels necessitate diverse pricing strategies. Assigning special prices to each channel can enhance sales performance on every platform. Businesses implementing tailored pricing strategies for individual channels see a 30% revenue growth.
3. Limit Price Reductions to Price-Sensitive Items
Avoid indiscriminate price cuts and concentrate on pinpointing price-sensitive products, adjusting their prices accordingly. SYMSON's competitive algorithm helps identify such products and proposes optimal pricing strategies. Companies employing targeted pricing tactics for price-sensitive items enjoy a 1-3% profitability increase.
4. Capitalise on your Competitors' Low Stock Levels
Monitor competitors' inventory levels and take advantage of periods of low stock. Companies that adjust their pricing strategies based on competitor stock levels experience a 5-10% sales increase.
5. Tailor Pricing according to Regions and Time Slots
Develop unique winning strategies for each region and time slot using data insights from SYMSON's AI-driven platform. Businesses employing dynamic pricing tactics based on regions and time slots witness a 10-20% revenue surge.
6. Raise Prices on Related (Inelastic) Products
Identify related inelastic products and raise their prices to boost profitability. SYMSON's algorithm aids in pinpointing the best price for these items. Companies adopting this strategy observe a 2-5% revenue increase.
7. Prevent Negative Margins by Adding Smart Business Rules
Establish price ranges and rules that prevent selling below cost-price to dodge negative margins. SYMSON's AI-powered platform guides businesses in determining the most effective rules to prevent such losses.
8. Gain a Competitive Edge with Pricing Tools
Utilise sales data and AI to uncover your products' competitive advantage. SYMSON's competitive pricing platform helps reposition product prices using sales data and AI, identifying the competitive sweet spot while evading a price war.
Employing AI-driven pricing in competitive markets empowers businesses to outpace their competition. By incorporating the eight essential techniques discussed in this blog, businesses can evade a price war and maintain their competitive edge. So, what is competitive pricing? It's the art of striking the right balance between being competitive and preserving profitability, and these techniques can help pricing managers achieve that delicate balance.
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!