Pros and cons of competitive pricing (2024 Update)

So, competitive pricing. Also known as competition-based pricing. Let’s start with the downsides of this strategy.

Downsides of competitive pricing

It's expensive when it's done manually

Competition-based (or competitive pricing) is a resource-consuming activity. If you do it manually, you have to assign a Pricing manager to track all your competitors online, check their prices on selected brands or categories, and based on what they have found, update your own prices. Ideally, this exercise has to be performed daily to make sure you don’t lose your competitive edge.

If you compare your prices to your competition once a month it’s useless in many cases. The only exception — is when you’re a wholesaler or distributor and compare your prices to the price-lists of other distributors (so called volume pricing or tired pricing). Those don’t change as frequently as B2C prices.

It's very data quality-sensitive when done automatically

If you use a software to perform comparison and repricing automatically, it’s not cheap either. But the biggest challenge in this context is to choose a solution provider that offer really (and we mean, really) high quality of the data. Otherwise, you will fall a victim of the well-known "garbage in — garbage out" rule.

For some eCommerce businesses choosing a mediocre quality data is a reasonable choice. For some, it's a question of life and death. Especially, if you get 80% better data at 20% premium price — doesn't it make sense to spend more to get a better product? In any case, choose a software that is right for your business and aligns with your goals.

Upsides of competitive pricing

You can go really strategic with your pricing and remove the pressure from your profit margin WITHOUT sacrificing your sales numbers

Here’s a real-life scenario. We have a customer who tracks Trustpilot reviews in real-life. As soon as one of the products in the relevant category becomes popular and gains a lot of reviews, the price on this product on their website instantly goes 5% lower than any of their competitor offers.

The result? They get crazy conversion rate from Google Shopping.

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The beauty with competition-based pricing is that you DO NOT HAVE to always offer the lowest price against your competitor.

You can afford to be strategic and offer the lowest price on a product that really makes a difference.

Here’s a sample of pricing strategies another customer we work with is currently using

As you can see here, they use:

— geo-based competitive pricing strategies,

— brand-based competitive pricing strategies,

— distribution-channel based competitive pricing strategies.

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They approach their pricing strategically and make sure they not only offer the best price (pursue Price Leadership) but apply it for strategically chosen items, brands and locations.  

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What is Pricing Leadership

Pricing leadership isn't rocket science and should work as follows:

— You analyse the market (how competitors price the same brands),

— Gather data on your customers's purchase intent (many ways to do this, but even using monthly volume searches via tools like Semrush, Ahrefs, or other SEO-related resources works)

— Pinpoint traffic drivers for each category and ensure you offer the best price for this product.

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To simplify the process, here is the anticipated customer journey with a pricing leadership strategy:

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=>Shoppers search for this item =>

land on your website as you're No1 in price=>

then it's your marketing team's task to cross-sell, upsell, and ensure the shopper leaves with something else that you don't have price leadership on but that will remove pressure from your profit margin

Unfortunately, not all sellers follow sensible steps. this As you can see in the screenshot attached, this is definitely NOT what a pretty large online seller is doing.

Does this pricing strategy feel like a finger in the air?

Why does the company we analysed subsidise pricing leadership for the item no one is looking for?

To answer this questions and never commit mistakes like the one above sign up for your FREE pricing certification course .

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