Competitive pricing is one of the most important components in an eCommerce marketing strategy. With access to frictionless price comparison shopping engines and product listings on eCommerce sites such as Amazon and Aliexpress, consumers have a broader view of the market in real-time.
Price is particularly important in the purchasing decision of items that are frequently purchased. Consumers consider price when deciding which store, product or brand to patronise.
- 62% of consumers say the price is an important factor [source: mytotalretail.com]
- 81% of buyers compare the offers of several stores in search of a better bargain Forrester
- Pricing affects brand equity [Chron]
To remain competitive, businesses need to know how your competitors are pricing their products. You also need to understand where you sit in the market when considering your own pricing strategy.
The price you set for your products can give you a competitive edge over your rivals, or it can make consumers look elsewhere. For businesses that are new to the eCommerce scene, you also have to keep one eye on the future.
What is competitive pricing?
Consumers typically associate price with product level. A higher price creates the impression that the quality is higher and vice versa.
Competitive pricing involves selecting a strategic price point that takes advantage of the market without underselling or overselling the product.
For eCommerce businesses selling products in a competitive market, other factors have to come into play when setting the price. This could be the level of quality or service you offer, whether you have a unique selling point or the product has design attributes that set it apart from other products on the market.
Advantages of competitor based pricing
A competitive pricing model is simple to implement and only requires basic research (albeit time-consuming research).
Remaining in and around the average industry price point keeps you competitive without damaging your brand image.
Disadvantages of competitor based pricing
Not always sustainable
Some businesses have to consider other factors when setting prices. Typical considerations include production costs, marketing and contribution to overheads. Using a competitive pricing strategy to break into the market may not deliver suitable profit margins over time - especially as you begin to scale up.
In highly competitive markets, there may be a number of eCommerce business owners that are not astute entrepreneurs. They may have set their prices to attract customers in the face of stiff competition - but they may have made the wrong decision.
Bear in mind that around 80% of small businesses fail in the first year. We’re not suggesting businesses fail due to an ineffective pricing strategy, but getting your pricing right does have a huge bearing on profits - and thus business survival.
Competitive Pricing Strategies
Positioning your products within the market should be based on your brand promise, your competitors' strength, and your pricing objectives. Essentially, your pricing strategy should be fitting for your product whilst remaining true to your brand values that the perceived image you want to portray.
Competitive pricing, therefore, becomes a fine balancing act between price and brand perception. Businesses have three options:
1. High competitive pricing
Studies show there is a correlation between brand image and pricing. Brands that are recognised as an industry leader or a luxury brand are well placed to set their prices higher than the competition. They rely on prestige to leverage sales.
When setting prices above the general mid-range price tag, you need a product that can rival other premium-priced products. In this instance, your business does not compete on price but on quality.
2. On par pricing
On par pricing is arguably the best strategy for new eCommerce business owners that sell an average product, or a product that can compete with premium goods in the future.
Pricing products at the same price point as your rivals, or towards the lower end of the premium pricing bracket, shows that you offer good value for money. If your product can be improved with subsequent models, you can incrementally increase the price to rival top brands.
A good example of this is when Samsung first launched its flagship Galaxy smartphone. The initial price point was several hundred pounds less than Apple’s established iPhone. Once the Galaxy could compete with the iPhone on specs, Samsung raised the priced to rival Apple in the premium price bracket.
3. Below Market Price
Undercutting competitors may help you make some early sales but selling below market price could give consumers the wrong impression about your brand and mean you are making a loss moving forward. Low prices may also be deemed as “predatory pricing” or “anti-competitive pricing” which is illegal.
Researchers also found that businesses that sold items at a low price when they first opened didn’t get many repeat customers once they increased the prices.
Competitive Pricing Examples
Today's consumers can conduct a price comparison search fairly easily for numerous products. Reports reveal that 70% of online shoppers use Amazon to compare prices.
It’s common for new products to be sold at the lower end of the pricing scale. This strategy works best for eCommerce businesses that can recover losses with other products.
A common practice is pairing “loss leader products” with other products. For example, a games console may be competitively priced but bundled with a game at a discount to incentivise a sale. Once you remove the game, the game console appears less expensive but is still aligned with the pricing of your rivals.
For new companies with products that require a significant amount of investment, prices should be adjusted to fit the marketplace. Cost savings should come elsewhere such as packaging, advertising and distribution. For example, Wyze only sells its smart bulbs online to cut down on distribution costs.
Online retailers need to keep track of competitor pricing. However, manually tracking products is a time-consuming and continuous job. The only realistic method of executing competitive pricing correctly is to use advanced price monitoring software that collects market data you can use to make informed decisions in real-time.
Price tracking tools will show you the price range of your competitors and highlight the average position among a cluster of competitors. The data also provides you with valuable insights of where your product sits within the market so that you can price your products accordingly without damaging the perception of your brand image.