Competition Based Pricing
Competition-based pricing is a strategy where prices are set based on the prices of competitors. This approach involves monitoring and analyzing the pricing strategies of competitors and adjusting prices accordingly. By aligning prices with those of competitors, businesses aim to remain competitive and attract customers while also ensuring profitability.
5 Key excerpts on "Competition Based Pricing"
eBook - ePub- Geoffrey Lancaster, Lester Massingham(Authors)
- 2017(Publication Date)
- Routledge(Publisher)
...This strategy carries risks such as aggressive competitor reaction and the creation of a down-market image. Although costs are just one of the inputs to pricing decisions, in many organizations they are given more emphasis than any other factors in setting prices. Cost-based pricing is criticized, but it is still a widely used approach. Before looking at cost-based and other approaches to pricing along with their respective merits, we need to look at the final key input to pricing decisions: competitors. Competitor considerations It is increasingly recognized that, in today’s competitive environment, effective strategic marketing plans are as much about being competitor-oriented as customer-oriented, as evidenced in the following quote from Porter: 5 Competition is at the core of the success or failure of firms. Competition determines the appropriateness of a firm’s activities that can contribute to its performance, such as innovations, a cohesive culture, or good implementation. Competitive advantage is the benefit derived through competitive strategy aimed at establishing a profitable and sustainable position against the forces that determine industry competition. Business can be compared to running a competitive race, with all the awards going to the winner. It behoves the marketing manager to make a careful analysis of the company’s competitors before devoting resources to marketing strategies. This involves an examination of competitors so that the planner can develop and sustain superior competitive performance. This deceptively simple statement belies the fact that to do this we must establish where competition stems from now and in the future...
eBook - ePub- Ross Brennan, Louise Canning, Raymond McDowell(Authors)
- 2020(Publication Date)
- SAGE Publications Ltd(Publisher)
...Pricing to maximize sales or market share will generally imply lower prices than profit-driven pricing, and may indicate a longer-term orientation (with the strategic aim of building a dominating position in the market) or a belief that higher market share will inevitably bring about higher profits. It is well known that there is a correlation between profitability and market share (Buzzell and Gale, 1987), but there is no obvious reason to suppose that this shows that higher market share causes higher profitability – it is equally likely that firms that pursue effective competitive strategies will achieve both higher profitability and higher market share (Nagle and Holden, 2002). Image-based pricing associates the price with the desired value position of the product in the mind of the business buyer; a premium price will be associated with above-average customer value, which may be delivered through product characteristics such as enhanced quality or additional customer service. Competitor pricing may be aimed at achieving price parity, at aggressively undercutting competitor prices, or at deterring new market entrants by keeping price sufficiently low that the prospects of profitable market entry are minimized. Whatever pricing objective is adopted, fairness will often be an additional consideration. For example, a shortage of a particular type of computer memory chip might encourage suppliers to raise their prices sharply (a practice known as ‘price gouging’) in the knowledge that personal-computer original equipment manufacturers (OEMs) have no ready substitute and must pay the higher prices if they are to maintain production...
eBook - ePubPricing and Profitability Management
A Practical Guide for Business Leaders
- Julie Meehan, Mike Simonetto, Larry Montan, Chris Goodin(Authors)
- 2011(Publication Date)
- Wiley(Publisher)
...The overall market environment and the nature of competitor behavior are equally important in the process. Market and competitor analyses can help a company understand the forces at work in its industry, and the ways it might use pricing to take advantage of these dynamics. These assessments evaluate overall market characteristics and look at how they impact a company's ability to succeed. Evaluation includes recognizing the power struggle between different actors—suppliers, buyers, competitors, and customers—to exert influence on one another. Competitor assessment can help companies understand where their products and services are positioned relative to the competition, on both a product feature and a pricing basis. Three types of market and competitor analyses are discussed in this section: Porter's Five Forces analysis Competitor positioning assessment Economic value analysis. These three tools (combined with customer value analysis) can help organizations begin to determine which pricing strategies might be more effective than others. Consider a competitive positioning assessment that leads executives to conclude that little difference exists between the brand perception of their product and that of a higher-priced competitor product with the same features. If a customer value analysis also suggests that price is the number one decision factor, then the organization might pursue a penetration strategy to expand market share and to build its credibility with customers. Porter's Five Forces Analysis One framework for analyzing an industry is Porter's Five Forces. 1 Porter's analytical model takes a snapshot of the current environment and measures the influences of four dimensions on it: threat of new entrants, threat of substitution, buyer power, and supplier power. These dimensions drive competitive rivalry between the different players...
eBook - ePubThe Strategy and Tactics of Pricing
A Guide to Growing More Profitably
- Thomas T. Nagle, Georg Müller(Authors)
- 2017(Publication Date)
- Routledge(Publisher)
...The key to such a strategy, however, is to remain focused. Enterprise Rent-A-Car initially managed to grow quite large before any major competitor responded to its growth because Enterprise stuck to serving off-airport customers. By the time it challenged the market leaders for the more lucrative on-airport business, it had already achieved a scale of operations that enabled it to be cost-competitive. If a company can effectively subsidize losses in one market because of the profits it can generate selling complementary products, it may be able to establish a price differential that competitors will be unable to close. For example, after its launch in 1995, Amazon’s rationale for its low pricing on books was to build up a body of loyal customers to which it could sell a broad range of other products—which now comprise a much larger share of revenue than its sales of books. More recently, Amazon has offered discounts on its Prime membership fee to build up viewership for its new content offerings like “Grand Tour”—as well as increase the installed base of consumers interested in purchasing from its vast assortment of other products and content. Sometimes price competition expands a market sufficiently that, despite lower margins and competitors’ refusals to allow another company to undercut them, industry profitability can still increase. Managers who take this course are assuming that they have insight that their competitors lack and are, in effect, leading the industry toward pricing that is, in fact, in their best interest. Before embarking on a price-based strategy, ask which of these four points describes your rationale and recognize that a growth strategy can rarely be built on price alone or sustained indefinitely. Summary No other weapon in a marketer’s arsenal can boost sales more quickly or effectively than price. Price discounting— whether explicit or disguised with rebates, coupons, or generous terms—is usually a sure way to enhance immediate profitability...
eBook - ePubThe ROI of Pricing
Measuring the Impact and Making the Business Case
- Stephan Liozu, Andreas Hinterhuber, Stephan Liozu, Andreas Hinterhuber(Authors)
- 2014(Publication Date)
- Routledge(Publisher)
...5 MAKING THE BUSINESS CASE FOR VALUE-BASED PRICING INVESTMENTS Stephan M. Liozu Introduction Of the three main approaches to pricing in industrial markets—cost-based, competition-based, and value-based—the last is considered superior by most marketing scholars (Anderson et al. 2010; Hinterhuber 2004; Ingenbleek et al. 2010) and pricing practitioners (Cressman Jr 2010; Forbis and Mehta 2000). Paradoxically, few firms have adopted it. A meta-analysis of pricing approach surveys between 1983 and 2006 reveals an average adoption rate of just 17 percent (Hinterhuber 2008b). Cost-based and competition-based approaches still play a dominant role in industrial pricing practice. There are many published reasons for the low adoption of value-based pricing. Scholars focus on the difficulty of defining value and the lack of market orientation (Anderson et al. 1993). Practitioners often mention issues with value assessment, internal communication breakdowns between marketing and sales teams, and the lack of incentive alignment (Cressman Jr. 2009; Hinterhuber 2008a). One of the least-mentioned barriers to the increased adoption of value-based pricing is the difficulty of measuring and selling the required investment and the ROI internally. While the role of champions at the top is a key to successful implementation (Liozu et al. 2011), it remains very difficult to justify the investment for value-based pricing and pricing in general to top management in the C-suite. What, then, are the roadblocks to justification? Difficulties in making the business case for value-based pricing Difficulty in scope definition The first possible difficulty lies in defining the scope of the value-based pricing concept. What are the relevant programs, activities, and costs? Our recent academic paper published in January 2012 in the Journal of Revenue and Pricing Management reveals the difficulty in conceptualizing value-based pricing (Liozu et al. 2012)...
