Marketing
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.
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4 Key excerpts on "Competition Based Pricing"
eBook - PDFStrategic Marketing Management in Asia
Case Studies and Lessons across Industries
- Syed Saad Andaleeb, Khalid Hasan(Authors)
- 2016(Publication Date)
- Emerald Group Publishing Limited(Publisher)
In other words, profit will be zero at the break-even point. At a level where revenues exceed costs, profits come in; at other levels, losses are incurred. The number of units that are required to be produced and sold to reach a no-profit situation at a given price is known as the break-even point. While cost-based pricing strategies are operationally good, they do have their limitations. Since profits increase along with costs, firms may lose any incentive to reduce costs. This inefficiency of the firm is charged to customers. Also, firms may lose by setting prices purely based on costs, and not considering market condi-tions, perceived value by the customer, or other considerations. Pricing Strategy 385 Competition-Based Pricing In a competitive market situation, companies opt for competition-based or competitive parity pricing. They follow three alternative courses — premium pricing, discount pricing, or parity pricing. A given competitor ’ s price will serve as the benchmark in these options. Premium pricing involves pricing above the competitor ’ s price. Discount pricing is pricing below such level. Parity pricing or going rate pricing is matching the price of competitors. The virtue of this approach is simple and an easy way to make a pricing decision without much effort. It also seems to be safe as setting a price close to the competitor ’ s and adjusting to it, a firm does not lose market share on account of pricing. But this method also has its limitations. Managers tend to become passive, not fulfilling their pricing responsibilities. If competitors also follow the same strategy, the prices for the entire industry will be out of sync with market realities. If firms in the same industry want to increase their market share, prices can slip into a downward spiral as was the case in the Indian telecom industry.
eBook - PDFVisionary Pricing
Reflections and Advances in Honor of Dan Nimer
- Gerald E. Smith, Arch G. Woodside(Authors)
- 2012(Publication Date)
- Emerald Group Publishing Limited(Publisher)
The objective of this paper is to introduce a systemic process for incorporating competitive Visionary Pricing: Reflections and Advances in Honor of Dan Nimer Advances in Business Marketing & Purchasing, Volume 19, 81 101 Copyright r 2012 by Emerald Group Publishing Limited All rights of reproduction in any form reserved ISSN: 1069-0964/doi:10.1108/S1069-0964(2012)0000019010 81 strategy into the pricing strategy process. An underlying premise is that managers have adopted a value-based pricing strategy. A description of value-based pricing strategy is beyond the scope of this paper; the reader may refer to Nagle and Cressman (2002) and Cressman (2001a) for an introduction to value-based pricing concepts. COMPETITIVE STRATEGY: AN INTEGRATED FRAMEWORK Fig. 1 presents an integrated systemic view of competitive strategy useful in the development and implementation of value-based pricing strategy. This systemic view suggests three important principles: 1. Competitive strategy is closely linked to critical components of the cus-tomer management component of a value-based pricing strategy, begin-ning with customer selection and offering design. Decisions made in these foundational elements of pricing strategy impact competitive strat-egy. In addition the converse is true: the competitive actions businesses Customer Targets/Offering Design Sources of Competitive Advantage Competitor Identification Direct Competitor Strategy Potential Competitor Strategy Competitive Tactics Fig. 1. Competitive Strategy Elements for Pricing Strategy. 82 GEORGE E. CRESSMAN JR. take often have a significant impact on customer and offering design activities. 2. To achieve profitable results from competitive strategy, managers must actively pursue development of sources of competitive advantage, which in turn affects interactions with direct and potential competitors.
eBook - PDFPricing for Profitability
Activity-Based Pricing for Competitive Advantage
- John L. Daly(Author)
- 2002(Publication Date)
- Wiley(Publisher)
Predatory pricing strategies are rarely attempted and are rarely successful. A successful predator must have the financial resources to be able to sustain a predatory price for a long period of time. Even if one competitor is eliminated, the predator may be so weakened itself as to be vulnerable to a competitive challenge by yet another firm. In recent years the courts have taken the general stance that competition is good, making predatory claims very difficult to win. Recent court cases have relied heavily on analysis of the relationship between cost and price. A defense solidly grounded in ABC data would make a very convincing argument if it showed that the incremental volume associated with a price decrease was cost justified. PRICE-BASED COMPETITION Having the best price can provide a competitive advantage. If two products are perceived to be the same, a rational buyer will choose the product that has the lowest price. After all, paying a lower price will enable buyers to conserve their resources, which will allow them to save or have additional resources to buy other things. All buyers have limited resources. Even the U.S. government has far less money than Congress has uses for tax money. Price is a signal of value. A buyer’s perception of value may be affected by brand name, packaging, previous purchasing experiences, and many other factors. Price will be more important in signaling value when a customer has little or no experi- ence with a product category. A customer planning a meal for a dinner party is more likely to choose a more expensive brand of an unfamiliar ingredient rather than compromise the quality of the meal. Experienced customers are better able to evalu- ate product value and make price–value judgments. Buyers are more likely to choose the lower priced item if they are knowledgeable and perceive the lower priced item to be at least as good in quality and functionality.
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
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