How to Strategically Price Your Product

With today’s oversaturated market, pricing strategy can either make or break the most innovative product. Modern consumers are there with their fingertips full of limitless information and they know a good value when they see one. In fact, 87% of shoppers prioritize getting “a good deal”.

So, how do savvy business owners stand out from the competition while still turning a profit? The answer lies in competitive pricing.

Defining Competitive Pricing

At its core, a competitive pricing strategy involves setting flexible prices based on your market position rather than just factoring in product costs. It means continually evaluating competitor rates and adjusting your own accordingly to leverage competition, spur innovation, and build customer interest.

As new entrants emerge in established markets, competitive pricing allows you to position your prices strategically for optimal success. Utilizing competitive data is essential in this process, enabling you to make informed decisions about your pricing strategy. Though intensified price wars can result, responding wisely to this competitive data is key to avoiding devaluation while still capitalizing on the competitive landscape.

Why a Competitive Strategy Matters

With 72% of adults in North America using their smartphones to research price comparisons while shopping in-store, you’re existing and potential customers know what your competition charges.

Failing to respond means surrendering sales. An adaptive competitive strategy positions you to convert more prospects into customers and higher profits by intelligently aligning with the market. Offering competitive prices also safeguards loyalty by retaining buyers who would otherwise venture elsewhere for better deals.

The Pros and Cons of Competitive Pricing

While the benefits make a strong case for competitive pricing, possible disadvantages deserve consideration, too:

Pros:

• Simplifies pricing decisions.
• Drives sales, revenue, and traffic.
• Adapts pricing to market changes.
• Protects market share and loyalty.

Cons:

• Risks margins and covering costs if too low.
• Buyers factor in more than just price.
• Challenging if competitors are positioned differently.
• Competitors may misprice items.

Carefully weighing these tradeoffs enables wise adoption of at least some items to appeal to bargain-focused demographics.

3 Approaches to Competitive Pricing

Generally, you have three pricing directions to respond competitively:

1. Discount – Lower than competitors.
2. Premium – Higher than competitors.
3. Parity – Match competitor pricing.

The best option depends on your positioning and objectives.

Discount Pricing Strategy

Discounting makes sense for new market entrants lacking the brand recognition of established players. Though margins suffer in the short term, discounted introductory pricing can help:

• Attract customers quickly with compelling value.
• Gain market share through aggressive acquisition.
• Build credibility and reviews through high sales velocity.
• Cultivate loyalty programs and repeat business.

Once credibility solidifies, you can gradually adjust pricing for better profits over time. Just ensure your operations can handle thinner margins early on.

Premium Pricing Strategy

When a product or service is distinctly higher quality or more cutting-edge than the competition, premium pricing can be viable. Factors supporting charging more than alternatives include:

• Proprietary offerings that outperform comparable items.
• Patents, formulas, or exclusive capabilities.
• Higher production/sourcing costs for better components.
• Strong brand reputation for innovation or luxury.

The goal is to position your business as an aspirational industry leader rather than just another vendor. Customers receive superior value in exchange for higher prices.

Parity Pricing Strategy

Matching – but not undercutting – competitor pricing can enable emphasis on other differentiating strengths like:

• Better customer service.
• Loyalty perks and discounts.
• Higher quality materials.
• Curated range/variety of offerings.
• Convenience, speed, access.

Parity pricing prevents sales from being lost solely due to cost by meeting market expectations. You retain control over positioning other value metrics as your advantage.

Responding to Competitors Strategically

When facing price wars, avoid knee-jerk reactions. The competitive price reaction matrix below offers strategic responses based on your positioning:

Explanations:

Ignore: Strong margins and differentiation mean resisting discounting urges if competitors slash prices. Stay confident, of course.

Defend: Maintain price integrity but use competitive edge over customer experience metrics to protect market share.

Mitigate: Reassert commitment to quality and value if competitors dropping prices. Reduce margins temporarily if needed.

Accommodate: Lacking clear advantages currently, minimize losses in market share and margins by matching prices. Reinforce strengths for next cycle.

Key Takeaways

Competitive pricing strategies that are effective consider pricing power and competitive advantage in concert. Smart entrepreneurs don’t respond instantly to competitor price changes, instead they consider the right response.

The right competitive pricing approach turns market pressure into an advantage by way of temporary price cuts, boosting perceived value or short-term losses. Using competition to maximize profitability and position the market that is unshakeable.