Competitive Pricing Strategy – Does it Work?

Reading Time: 4 minutes
Reading Time: 4 minutes

Consider this: As a value-added reseller (VAR), you have just started your business with no clear idea on how to price your products profitably. What could be a possible solution to quickly figure out the right pricing strategy? An easy way out is to copy your competitors’ prices for the same products that you are selling.

When starting out in a VAR business, deciding the pricing for your products is no easy task. Price is a crucial factor a customer will consider when making a purchasing decision. Customers are price sensitive and browse through multiple sites for price comparison and choose one that offers the best deal.

Price your products too high and your customers will not buy; price too low and your profits will be negligible. The key is to set the most competitive price in the market and ensure a good return on investment.

What is Competitive Pricing?

Competitive pricing is a pricing strategy in which the competitors’ prices are taken into consideration when setting the price of the same or similar products. The focus is on competition-driven prices rather than production costs and overheads. 

Prices are based on how other VARs price their products and services in the market. Many times, even big corporate companies implement competitive pricing strategy when entering new markets.

To establish the right price of the product in the competitive pricing method, a detailed market analysis is required. You need to have a robust data collection mechanism to keep track of your competitors’ prices. 

In most cases, VARs use a competitor price tracking software to monitor the pricing trends of their products in the market. Using this technology will surely help you to respond quickly to competition and set the optimum price for your products and win more sales.

Competitive Pricing Options

Your competitors’ product prices serve as a benchmark to set the price of your products. You will take one of the three actions after analyzing the price of your competing products:

  • Price below the Competition

Consumers’ love for low prices is well known. Pricing your products below the market value is an excellent strategy to grab the customer’s attention and increase sales. 

However, when slashing your prices, ensure that you don’t hurt your bottom line. Try to reduce product cost by building a strong relationship with your distributors. 

When you are getting products at a lower price, it is possible to charge consumers below the competition without compromising on profit margins.

Many VARs adopt this pricing strategy when they are aware that their products or services are superior to competitors’ in some way. By setting a lower price, you can compete with top brands and give customers a good reason to purchase from your relatively unknown eCommerce store

The initial low price will encourage customers to purchase additional products, enabling you to mitigate loss impact.

  • Premium Pricing – Price above the Competition

If you feel that your products or services are superior to your competitors, consider adopting this pricing strategy. There must be a valid reason to price products at a premium price. Your products should stand out from the competition. For instance, improvements and new product features can justify a higher price.

To charge consumers more, you can differentiate your products from competitors through customization, bundling them with additional products or services, such as special customer support, for example.

It is important that your customers also recognize the premium quality of your products and services, and therefore have the willingness to pay more.

Before you decide to charge an amount above the competition, it is imperative that you have established a reputation as a provider of unique, innovative products. 

For example, consumers readily buy Apple’s overpriced products because the company has a strong reputation for making high-quality products.

  • Price Matching – Pricing at the Same Level

If you are planning to offer products at the same price as that of your competitors, ensure that you have a better offer. Product features could be the same, but the focus is now on added value. 

Since there is no price difference, you need to consider what other benefits customers can get from choosing your products. 

For instance, any added value or benefits customers receive, such as extended warranty can give you a competitive edge and help you gain some market share.

If there is nothing that differentiates your products from your competitors’ offerings, you stand the risk of losing your business. With price no longer being a distinguishing factor, you will have to implement aggressive marketing strategies to attract customers to your business.

To Conclude

Your competitors’ behaviors play a critical role in determining prices. With a competitive pricing strategy, you can identify the best prices that are logically within the market context in which you operate and improve your profit margins.

Further reading on pricing strategies

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