Can\u2019t you simply price your products based on their costs and target profit margins? What could go wrong if you ignored competitor prices?
\nFew people would visit your store, and even fewer would buy anything. To put it another way, you\u2019d lose sales. We understand that competitive pricing may appear perplexing, but it serves the needs of online retailers.
\nIf you\u2019re ready, let\u2019s define competitive pricing and analysis and also discuss the benefits and drawbacks of the strategy.<\/p>\n
A competitive pricing strategy is a pricing policy that uses the prices of competitors as a benchmark for setting prices. This strategy is also known as “competition-based” or “competitor-based” pricing. In most cases, businesses adopt a competitive pricing strategy<\/a> after determining that a cost-plus approach is no longer viable.<\/p>\n Competitive pricing analysis<\/a> is an assessment of consumers\u2019 reactions to new prices through research based on historical data or polling. So, typically, price analysis examines customers\u2019 reactions to a price without taking into account the business’s costs or potential profits.<\/p>\n According to Forrester Consulting, 81% of buyers compare<\/a> offers from multiple stores in search of a better deal. Retailers who can collect and analyze market data, map their position against competitors, and offer competitive prices are the first to catch these buyers\u2019 attention. In order to evaluate competitors, we need complete and accurate data. We polled our clients from various countries to determine the following criteria as essential to high-quality data:<\/p>\n Color, technological features, and other product attributes are critical for high-quality data and are not available on product cards, so retailers must consider anything.<\/p>\n The majority of data matching is automated, and as a result, it is vulnerable to error. So, manual comparison improves the accuracy of the automated solution and guarantees better performance.<\/p>\n Data may be insufficient because the algorithm may be missing information that is not available on the competitor\u2019s website. This means that the amount of data predicted prior to collection will be greater than the amount of usable data delivered.<\/p>\n Retailers could use the information gathered no later than two hours before repricing. Following that, the organization must assess the critical parameters of competitive data that it needs to obtain and evaluate for its pricing process. Here are a few examples of the types of parameters that are normally monitored:<\/p>\n This shows the retailer\u2019s market share<\/a> for a specific product or class of products over a specific time span. Hence, the price index illustrates how market conditions influence sales and provides information on prices listed by competitors.<\/p>\n According to the same Forrester Consulting report, at least one-third of customers look for discounts before purchasing an item. This means that it is important to constantly track the discounts and sales of those in the industry in order to maximize promotional offers.<\/p>\n Retailers may change their prices based on the availability of an item or class of products on the market at a given point in time by tracking competitors and their commodity stocks.<\/p>\n Many retailers believe that sustainable pricing is solely based on peer-group research. However, competitive price analysis<\/a> necessitates a detailed examination of internal company data (i.e., historical data) as well as data about rivals. Without a thorough understanding of the market and your role as a retailer, it is difficult to set optimum prices and thrive with competition-driven pricing. Once a retailer has comprehensive data on their rivals, the retailer must identify them based on a variety of criteria, including but not limited to target demographics and product quality. Market competition can be classified into three broad categories:<\/p>\n Categorizing rivals reduces the time required for market research<\/a> and enables retailers to steer their efforts in the right direction in terms of competition.<\/p>\n When identifying and categorizing rivals, a data-driven approach<\/a> may also be used. You may be able to manually categorize rivals if you are a mono-brand retailer or sell a very small number of SKUs. However, for large sellers with thousands of products available across multiple pricing zones, smart competitor analysis is the only option.<\/p>\n Aside from that, the competitive landscape for each product is changing as other retailers adjust their strategies and new players enter the market. That is, competitive analysis and categorization are ongoing processes that should be performed on a regular basis depending on the product type or market segment.<\/p>\n To meet this need, Competera<\/a> provides a \u2018True competitors\u2019 module, which allows retailers to determine the true impact each player has on specific SKU sales by analyzing retailer and also competitive historical data.<\/p>\n Algorithms are increasingly being used by modern retail companies to collect and analyze data<\/a>. So, machines have several advantages over manual methods:<\/p>\n The most important aspect of incorporating automation into the pricing process, in my opinion, is that it enables retail teams to shift from routine tasks to strategic tasks involving pricing strategy and price management.<\/p>\n Basically, retailers are concerned about the additional costs associated with the introduction of automated pricing systems. The truth is that these solutions are merely cost-cutting measures. Wiggle CRC, for example, not only cut repricing time in half but also gained a comprehensive view of the market at a lower cost. The latter was accomplished primarily by monitoring marketplaces rather than competitors\u2019 websites.<\/p>\n Retailers should keep an eye on their competitors and their platforms, such as official websites and social media accounts, to gain a better understanding of the market. Several factors must be considered by businesses:<\/p>\n Moreover, retailers can also sign up for official updates and track their rivals on social media. Businesses must consider what draws customers to the goods of their rivals. Competitive pricing strategies have advantages and disadvantages. These include the following;<\/p>\n The risk involved in this pricing strategy is relatively low. This is because the price setters are big organizations that carry out relevant research before setting their price.<\/p>\n In addition to its low-risk advantage, it is also very simple to imbibe. All you have to do is wait for the price setters to set the price and then, you take it up from there.<\/p>\n Competitive pricing strategies can be used with other pricing strategies for a more robust output.<\/p>\n Generally, the price setters are big companies with brand loyalty<\/a>. When you keep following their lead, you may not be able to break even and this is not good for business brands.<\/p>\nWhat is a Competitive Pricing Analysis?<\/span><\/h2>\n
What Is the Importance of a Competitive Pricing Strategy in Pricing Analysis?<\/span><\/h2>\n
\nCompetitive pricing is a pricing technique that assists companies in attracting more consumers by maximizing rates using competitor products and pricing data. Hence, an effective pricing strategy will dramatically increase sales, improve supplier cooperation, and increase revenue.<\/p>\nImplementing a Competitive Pricing Analysis<\/span><\/h3>\n
#1. Determine the Data Quality<\/span><\/h4>\n
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\nTime for data delivery To improve the effectiveness of comparative analysis, product and pricing data should be provided to the retailer\u2019s internal system every 20\u201330 minutes.<\/p>\n#2. Specify Data Parameters<\/span><\/h4>\n
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\nThe parameters mentioned above are just a small portion of the data that retailers can track. You can track any type of data, such as stock levels, sales volumes, eCommerce traffic, promotions, and so on, depending on your business goals and the reasoning and rules you use when repricing.<\/p>\n#3. Competitors should be classified.<\/span><\/h4>\n
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#4. Use Machine-Based Pricing Tools to Conduct a Competitive Pricing Analysis<\/span><\/h4>\n
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#5. Monitor your competitors\u2019 online activity.<\/h4>\n
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\nThere are also a few examples of how open source knowledge can help retailers. Furthermore, the more key points they discover and evaluate, the more accurate their knowledge would be for making critical pricing decisions.<\/p>\nCompetitive Pricing Advantages And Disadvantages<\/h2>\n
Competitive Pricing Advantages<\/h3>\n
#1. Low Risk<\/h4>\n
#2. Relatively Simple<\/h4>\n
#3. Involves The Use Of Other Pricing Strategies<\/h4>\n
Competitive Pricing Disadvantages<\/h3>\n
#1. Inability To Break Even<\/h4>\n
#2. Untested And Unsustainable Strategies<\/h4>\n