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29.01.2025
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Competition-Based Pricing: Pros and Cons

Competition-based pricing is one of the most popular strategies in e-commerce — and for good reason. Research shows that 46.8% of online shoppers view pricing and discounts as the most important factors in their purchasing decisions.

But what challenges and risks come with adopting a competitive pricing strategy?

In this article, we explore the key advantages of this approach, dive into the potential risks, and share some tips on how to avoid them.

Contents:

What Is Competition-Based Pricing?

Types of Competition-Based Pricing: Examples

Advantages of a Competition-Based Pricing Strategy

Risks of Competition-Based Pricing

Tools to Support Competition-Based Pricing

What Is Competition-Based Pricing?

Competition-based pricing is a strategy where competitors’ prices serve as the point of reference for setting your own.

From a practical standpoint, the success of this strategy hinges on two factors: access to accurate, up-to-date market price data and the ability of category or pricing managers to analyze this data effectively to make informed pricing decisions.

If you plan to implement competition-based pricing, it’s essential to:

1. Monitor competitors’ prices consistently and regularly

2. Use reliable tools to analyze market offerings

Platforms like Pricer24 streamline the data collection process and offer powerful analytical capabilities, enabling you to make data-driven decisions with ease.

Types of Competition-Based Pricing: Examples

1. Above the Competition

This approach, often referred to as premium pricing, involves setting prices higher than the market average. It relies on the perception of the product as exclusive, high-quality, or unique.  

This strategy is ideal for companies aiming to establish an elite brand image and attract customers who are willing to pay a premium.  

Examples:

  • Brands offering innovative or rare solutions: Dyson, Apple 
  • Luxury goods manufacturers: Rolex, Louis Vuitton  
  • Providers of premium services: Ritz-Carlton, Emirates Airlines  

2. In Line with the Competition

A mid-market pricing strategy, also known as mid-level pricing, involves setting prices in line with the industry average. This approach focuses on maintaining competitiveness by balancing price, quality, and the product’s perceived value to the customer.

This strategy works well for businesses that compete not just on price but also on factors like service or convenience.

Examples:

  • Consumer goods brands: Uniqlo, Mango
  • Online retailers in competitive markets: ASOS

3. Lower Than the Competition

This strategy is effective for businesses targeting price-sensitive audiences or aiming to quickly capture market share. The specific implementation depends on whether the company’s goals are short-term or long-term.

Temporary Pricing Below Competitors

This approach is often part of a market penetration strategy, used when entering a new market or launching a new product. The objective is to attract attention, gain market share quickly, and then adjust prices after achieving the desired position.

Examples:

  • Xiaomi: When entering the smartphone market in various countries, Xiaomi employed a market penetration strategy, offering feature-packed smartphones at affordable prices. This helped the brand rapidly gain market share and establish itself as a favorite, after which prices for some models were increased.
  • Uber: In new markets, Uber frequently introduces low taxi fares to attract customers. For instance, in new cities, the company offers ride discounts to build a user base and ensure widespread adoption.

Long-Term Low Pricing (Price Leadership)

A low-price or price leadership strategy involves maintaining consistently low prices over the long term. This approach leverages economies of scale and high sales volumes to sustain competitiveness. It’s often supported by advertising and brand positioning as a value leader.

Examples:

  • Walmart: With the slogan “Save money. Live better.” Walmart positions itself as a low-price leader across a wide product range. This strategy attracts cost-conscious customers and drives high sales volumes through prices that are lower than competitors’.
  • IKEA: Guided by the mission “to create a better everyday life for the many people,” IKEA consistently offers affordable furniture and home goods. The company relies on economies of scale to maintain low prices while ensuring profitability.

The ultimate goal of both of these low pricing strategies is to achieve high profitability through large sales volumes, leveraging economies of scale to sustain a competitive advantage, even with lower prices than competitors.

Advantages of a Competition-Based Pricing Strategy

When shopping online, most buyers compare product prices across various stores and platforms. By analyzing competitors’ pricing and understanding market demand, you can effectively manage your prices to boost sales and increase market share.

Key Advantages of This Strategy:

  1. Simplicity
    This approach is straightforward, relying on analyzing and adjusting prices to align with competitors’ offers.
  2. Relevance for E-Commerce
    Competition-based pricing helps businesses stay competitive and adapt quickly to market changes — an essential advantage for online stores.
  3. Ease of Implementation
    For a small product range, prices can be adjusted manually. For larger assortments, automation tools simplify the process. By monitoring competitors’ prices, you can ensure timely adjustments, whether through manual updates or automated repricing scripts.
Case Study
Dynamic Pricing for Scaling Home Appliance Sales

Risks of Competition-Based Pricing

While pricing based on competitors’ rates offers clear advantages, it also presents several risks that can impact a company’s financial health and market positioning. Let’s explore these risks in detail:

  1. Overlooking the Value Proposition
    If a brand focuses solely on price, customers may choose its product based on affordability rather than quality, innovation, or added value. Over time, this can erode customer loyalty and diminish your brand’s perceived worth.
  2. Limiting Potential Profit
    Prioritizing low prices can restrict your ability to achieve higher profit margins. This may hinder investments in critical areas such as product development, marketing efforts, or expanding your product range, potentially stalling long-term growth.
  3. Risk of Price Wars
    Engaging in price competition can lead to price wars, where competitors continually lower their prices below profitable levels. This scenario often results in reduced profitability for all market players, destabilizing the industry.

Tools to Support Competition-Based Pricing

In today’s competitive e-commerce landscape, businesses increasingly rely on price monitoring platforms to stay ahead and refine their pricing strategies. These tools enable businesses to collect, analyze, and leverage competitor data in real time, ensuring they can quickly adapt to market changes and maintain a competitive edge.

Price monitoring platforms offer comprehensive solutions that combine automated data collection with powerful analytical features. They are particularly valuable for midsize to large businesses, as they are capable of processing vast amounts of data and providing a detailed, up-to-date market overview. This not only saves time for category managers but also empowers them to make informed and strategic pricing decisions.

Advantages of price monitoring platforms:

  • Real-Time Data: Prices and market conditions are updated instantly, allowing businesses to react quickly to competitors’ pricing strategies and stay ahead of market trends.
  • Comprehensive Insights: With intuitive dashboards and detailed reporting capabilities, these platforms deliver actionable insights that help businesses optimize their pricing strategies and boost profitability.
  • Broad Data Collection: Price monitoring platforms track more than just competitors’ prices. For instance, Pricer24 monitors product availability, customer reviews, average ratings, competitor promotions, and the history of price fluctuations. This comprehensive data helps businesses gain a fuller understanding of the market.
  • Seamless Integration: Many platforms integrate with internal systems, automating the repricing of products based on predefined algorithms, ensuring real-time price adjustments that align with business goals.

Disadvantages of price monitoring platforms: 

The most notable downside is the cost. However, for midsize and large enterprises, the long-term benefits — such as enhanced decision-making, improved efficiency, and better pricing strategies — typically justify the cost.

Conclusion

A competitive pricing strategy enables businesses to stay flexible and quickly adapt to a dynamic market environment. For successful implementation, it’s crucial to leverage modern tools for competitive analysis. Platforms like Pricer24 not only automate data collection but also offer comprehensive analytics, empowering category and pricing managers to make well-informed decisions.

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  • Market analytics
  • Price parsing
  • Product visibility
Take a consultation
  • Market analytics
  • Price parsing
  • Product visibility
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