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Guide
8.10.2023
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Conduct a Competitive Pricing Analysis for a Competitive Pricing Strategy in 2023
Competitive pricing analysis is an indispensable tool for online stores. It guides them in pricing decisions, helps them set market prices, and highlights competitors’ strengths and weaknesses. Neglecting this e-commerce tool results in a decline in business competitiveness and a loss of market share in favor of more informed players.
In this article, you will discover how to analyze competitive pricing, why it is crucial for your pricing strategy in 2023, and how to conduct effective competitive price analysis.
A competitive pricing strategy uses competitors’ prices as a reference for setting one’s own prices. This strategy is also referred to as competitor-based pricing.
In most cases, companies choose this pricing strategy when it becomes evident that the cost-plus approach, where a standard markup is added to product costs, is no longer effective. It ignores the role of competitors and the fact that, according to Statista, most customers compare prices before making online purchases.
There are three methods to implement competitive pricing:
Setting prices lower than competitors (a low-price strategy)
Setting prices equal to competitors’ prices (a mid-market pricing strategy)
Setting prices higher than competitors (a premium pricing strategy)
All three practices can be used simultaneously, each applying to specific goods within a product category. For example, the strategy for main products (such as cameras) may involve setting lower prices, while for extra items or accessories (like film or memory cards) the strategy may be to set higher prices. By offering main items at lower prices, a company can boost its revenue through the sale of сompanion goods, which can, in some cases, effectively fend off competition.
To implement competitive pricing, a company must have up-to-date information about competitors’ market prices. There are several ways to get this information. In small businesses, category managers often manually gather data on competitors’ prices by reviewing competitors’ websites and entering data into Excel. In contrast, big brands use technological solutions and services like Pricer24, which automates data collection and price comparison. This not only saves managers’ time but also provides visual reports for monitoring and offers more opportunities for analyzing and comparing competitors’ prices, discounts, promotions, and special offers.
What Is Competitive Pricing Analysis?
Competitive pricing analysis is the process of collecting, analyzing, and interpreting data about competitors’ pricing strategies. It is conducted to understand the logic or rules that competitors follow when setting product prices. In other words, this analysis goes beyond simple price comparisons. It involves gaining insights into competitors’ pricing strategies, market positioning, and factors that influence competitors’ pricing decisions.
Competitive pricing analysis is a complex process that calls for a thorough investigation of your competitors’ pricing tactics and comprehension of market dynamics. Ultimately, it helps in making effective pricing decisions even in the face of stiff competition.
Importance of Competitive Pricing for Pricing Analysis
Competitive pricing analysis is not just a theoretical exercise but a practical tool for making informed pricing decisions. This means that pricing decisions are not made in a vacuum but rather as part of a coordinated strategy based on market analysis, competitors’ actions, and an evaluation of one’s own strengths and weaknesses. That’s why the ability to conduct competitive pricing analysis is one of the fundamental competencies for e-commerce category managers.
If you understand the pricing strategy of your competitors and have information about market demand, you can effectively manage prices, increasing sales and your market share. In practice, when setting market prices, online stores sell up to 20% more products compared to setting prices that exclude the effects of competitors.
Mykhailo Bohdanchykov, Product Manager at Pricer24
Learn more in our KTC case study about how monitoring competitors’ prices helped an online electronics store increase its website conversion rate by 14% and bring in more new customers.
How to Conduct a Competitive Price Analysis in 2023
Key steps in competitive pricing analysis include:
1. Identifying competitors offering similar products
2. Collecting pricing data
3. Analyzing competitors’ pricing, which involves finding answers to questions such as:
How do market dynamics, demand fluctuations, seasonality, and product life cycles impact competitors’ pricing decisions?
Do competitors use dynamic pricing, psychological pricing, or follow-the-leader pricing?
Answers to these questions provide insights into a competitor’s overall strategy.
4. Analysis of competitors’ positioning: This refers to competitors’ unique selling propositions (USPs) and branding strategies. For example, when assessing competitors, you may realize that Retailer A positions itself as a discount store, while Retailer B focuses on being a niche store with the broadest assortment in specific categories. Positioning influences a company’s pricing policies.
Let’s look at an example of how to use the Pricer24 analytics platform to conduct competitive pricing analysis.
Step 1. Identify competitors
Analyze competitors’ sales for a specific period (you can get these details from partners) and identify sales leaders in the category. With Pricer24, you can tag leading competitors to quickly filter data.
Step 2. Collect data
If you are using an automated solution, it already includes data parser functionality. Information about prices is collected regularly and automatically, without involving category managers.
Step 3. Analyze pricing and competitor positioning
In addition to price parsing, Pricer24 includes data analysis functionality. The system automatically matches competitors’ prices, and you can display premade analytics in a few clicks in order to compare current competitor prices with your own.
Price Comparison Report
Explore historical pricing data and trends on competitors’ websites during key trading events, such as Black Friday or the back to school season.
“Price history” report for a product
To gain deeper insights into competitors’ strategies, pay attention not only to base prices but also to current competitor discounts with the help of the Pricer24 Market Analysis report.
“Market Analysis” report – when you click on the “number of promo” cell, a list of promotional products opens
Based on analysis results, you may spot various trends and patterns. For example:
Competitor A always runs promotions with free shipping if there are prices lower than theirs in the market.
Competitor A consistently sets prices lower than Competitor B.
Competitor A consistently drops prices (violates MSRP) from 21:00 to 8:00 and on weekends.
Competitor C always sets prices at a 10% markup from the purchase price and never lowers prices.
Competitor B always sets prices at $10 above the purchase price from the supplier.
Analyze the patterns identified in competitive pricing analysis and make relevant decisions to improve your own strategy.
Remember that competitive pricing analysis is not a one-time task, as the market is dynamic. Monitoring competitors’ prices should be a daily practice for the category manager of an online store.
Benefits of Competitive Pricing Analysis
Price optimization
Competitive pricing analysis may help with forming your price strategy. You may set prices that are competitive enough to attract consumers while ensuring a healthy profit margin by understanding competitors’ pricing strategies.
Improved decision-making
Effective pricing strategies are built on informed decisions. You may make adjustments based on real market conditions as opposed to depending on guesswork or assumptions by performing competitive pricing analysis.
Price Сomparison
This is a comparison of your prices with the prices of competitors.
The main benefit is the ability to quickly identify products or categories where you are overpriced or underpriced and adjust your pricing to stay competitive.
Conclusion
E-commerce category managers are required to regularly perform competitive pricing analysis. Swiftly responding to competitors’ actions is essential for survival in highly competitive markets such as online retail.
Keep track of competitors’ prices and make decisions based on data that will help your company grow.
FAQ
Q1: What challenges can arise during competitive price analysis?
Competitive price analysis can be challenging because collecting accurate and up-to-date price statistics and interpreting them correctly can be time-consuming.
Q2: How does competitive analysis affect an online store’s pricing strategy?
Competitive analysis provides important information that helps category managers make informed pricing decisions. This ensures that pricing strategies align with market conditions, enhancing both competitiveness and profitability.
Q3: How can you improve competitive pricing analysis?
Use solutions for data collection and visualization. Thanks to these tools, you will always have accurate and up-to-date competitor data and can analyze it by reviewing visual reports, tables, and dashboards.
Request a demo to see how Pricer24 can meet your needs
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