Implementing a competitive-based pricing strategy requires a thoughtful approach, not just a reactive pricing model. Let’s dive into why adopting a competitive pricing strategy requires careful planning and execution, supported by real-world examples and a structured six-step approach.

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Case Studies: 2 Real-World Lessons in Competitive Pricing

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To illustrate the importance of a strategic competitive pricing approach, consider these two case studies.

McDonald's: A Price Hike Gone Wrong

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McDonald's, a global fast-food giant, recently experienced a significant revenue and margin decline following a series of price increases across its menu. While the company had raised prices in response to inflation, they failed to account for how their pricing compared to local competitors, like small snack bars and cafeterias. These local competitors often offered better quality products and superior customer service, making McDonald's appear less competitive in the market. The result? McDonald’s lost its price advantage and saw a sharp drop in customer retention and sales, leading to a large stock price hit.

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This example highlights the importance of monitoring competitive dynamics. Even industry leaders like McDonald's can fall into the trap of price increases without fully considering the competitive landscape.

Yumbo: Strategic Misalignment

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Yumbo, a supermarket chain in the Netherlands, found itself in a similar predicament. The company initially attempted to compete with discount retailers like Aldi by adopting a price-fighting strategy. However, Yumbo's offering also focused on providing premium services, local foods, and superior customer service, an approach at odds with the cost-cutting measures of its discount competitors. This misalignment led to operational challenges, as it was difficult to sustain low prices while delivering high-value services. However, with a new CEO at the helm, Yumbo shifted its focus to customer-centricity and premium service, which yielded better results.

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Both McDonald’s and Yumbo's experiences serve as stark reminders that pricing should not be treated in isolation. It must align with your overall value proposition, operational capabilities, and market positioning.

Watch full webinar here: 6-Step Approach to Successfully adopt Competitive Pricing

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6 Steps to Apply Competitive Pricing Strategy

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Adopting a competitive pricing strategy is not a one-size-fits-all solution. To successfully implement such a strategy, companies should follow a structured approach, broken down into six actionable steps.

Step 1: Product Selection Criteria

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The first step is to identify which products to include in your competitive pricing strategy. Not all products are suitable for price competition. The most effective approach is to focus on your top key value items: products that are highly price-sensitive and drive traffic to your store or website. Typically, these key value items make up only 10-20% of your product portfolio, but they can have a major impact on your brand perception and customer acquisition. By limiting the scope of competitive pricing, you can optimise resources and avoid wasting time on low-impact items.

Step 2: Strategic Considerations

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Your pricing strategy must align with your company’s value proposition. The classic value disciplines model by Michael Treacy and Fred Wiersema suggests three value strategies to choose from:

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• Product Leadership (e.g., Apple): Focus on innovation and premium product offerings.
• Customer Intimacy (e.g., Coolblue): Prioritise customer experience and long-term relationships.
• Operational Excellence (e.g., Action): Offer cost-effective products with streamlined processes.

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Each strategy comes with its own pricing implications. For instance, a company pursuing product leadership can command premium prices for innovative products, while a business focused on operational excellence might use low pricing to gain market share.

Step 3: Identifying Relevant Products and Competitors

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Once you've determined your product selection and strategy, the next step is identifying the competitors that are most relevant to your business. Use dimensions such as price and quality to plot competitors and understand where your business stands in the market. Differentiating competitors based on service levels, customer focus, and target segments is also crucial, as it allows you to assess whether a competitor’s pricing is really comparable to yours.

Step 4: Gathering and Analysing Competitor Data

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At this stage, it's essential to collect data on competitor pricing. There are various methods for doing this, including:

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• Scraping websites using product identifiers like EAN codes or manually inputting URLs for direct product comparisons.
• Image recognition or using manufacturer IDs for products that do not have standardised identifiers.

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By consistently gathering this data, whether daily, weekly, or monthly, you can spot patterns, track price changes, and gain insights into how competitors adjust their pricing over time. This analysis helps you stay agile and respond proactively to market shifts.

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Step 5: Implementing Pricing Strategies

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Once the data is in hand, it's time to implement your competitive pricing strategy. There are several strategies to consider:

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• Price Matching: Match your competitors’ prices to maintain competitiveness without getting into a price war.
• Price Skimming: Set a high initial price for new products and gradually lower it as competitors enter the market.
• Lower Price Strategy: Compete on price by consistently offering lower prices than your competitors, often used by companies focused on operational excellence.
• Key Value Item Pricing: Use competitive pricing for key value items and adjust the prices of complementary or substitute products to optimise margins.

Step 6: Automating and Continuous Improvement

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To stay competitive, pricing must be continuously monitored and adjusted. This is where automation tools, like Simpson, come into play. These platforms allow you to automate pricing updates based on competitor data, ensuring your prices stay aligned with your strategy and market conditions. Automation also enables real-time responsiveness to price changes, reducing manual effort and increasing operational efficiency.

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Automation tools also help with continuous improvement. By monitoring the effectiveness of your pricing strategies, you can adjust tactics to improve margin performance, customer satisfaction, and competitive positioning.

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