Getting Customers

How to Create a Competitive Pricing Strategy

Competitive pricing strategy could be described as a technique that organisations use to attract customers to purchase goods from them instead of from their competitors. Pricing strategies are required for product placement, product promotion, marketing strategy and for competition. If a business or a company has to dominate the market it is essential for that business to have a competitive pricing strategy.

Most of the time the price of a product or service is determined based on what the competitors are charging. Competitive pricing is used mostly by businesses selling similar products, since services can differ from business to business, but the concept of a product remain similar. This type of pricing strategy is generally done once a price for a product or service has reached a level of equilibrium, which normally occurs when a product has been in the market for a long time and there are many other substitutes available for the product.

Various factors have to be considered when pricing a product, taking into account variables that can be controlled and variables that cannot be controlled. A good competitive pricing strategy encourages customers to patronize one store over another. Many of the big multi-national companies are very good examples for following good pricing strategies for market penetration, creating a niche, creating a demand, and establishing a monopoly in the market.

Pricing strategies have a lot of definite advantages such as better revenues, establishment of market segments, and customer retention. Customer retention helps you to have a sway over the market even when the market is volatile and shows a steep rise or fall. One of the most important factors of effective market strategy is the quality to maximise and protect the price of the product. Strategic pricing establishes the relation between market segmentation and price and helps you determine price elasticity, and break-even. While strategic pricing defines costs and competition, strategic analytic tools can be used for pricing strategies and price adjustments.

Competitive pricing strategies differ and the price is of different types. Here are a few important ones.

  • Fair Price: This is the price at which the company sells the product with the nominal profit margin. This is also known as cost pricing.
  • Consumer Price: The company ascertains from the consumer the price that they would pay.
  • Market Price: The price of the goods depend on the demand and supply of the goods position – the higher the demand, the higher the price and vice-versa.
  • Export Price: The price of international goods depends on the cost price plus the foreign exchange margin.
  • Competitor Price: In this case, the price of goods is decided by the existing competition. The price of goods is adjusted depending on the competition.
  • Bid Price: This pricing is usually done for special goods on the internet, at antique shows, or at exhibitions.
  • Discounted Prices: Discounted prices are applied when the demand for the product is low or for special finance or loan schemes.
  • Creaming or Skimming: In skimming goods are sold at higher prices so that fewer sales are needed to break even. This strategy is employed only for a limited
  • duration to recover most of the investment made to produce the product.
  • Limit price: A limit price is set by a monopolist to discourage entry into the market by others.
  • Market-oriented pricing: In this case a price is set based on analysis and research done in the target market area.
  • Penetration pricing: In this case, the price is set low with the aim of attracting customers to gain the market share.
  • Price discrimination: Here, a different price is set for the same product in different segments of the market.
  • Premium pricing: In this method, the price of a product is kept artificially high to encourage favourable tthinking among buyers based solely on price.
  • Predatory pricing: This is also known as aggressive pricing with intention to drive out competition from the market.
  • Psychological pricing: Selling a product at 1.95 or 1.99 instead of 2.00.
Entrepreneurial Learning:

Competitive pricing strategy could be described as a technique that organisations use to attract customers to purchase goods from them instead from their competitors. Pricing strategies are required for product placement, product promotion, marketing strategy and for competition. If a business or a company has to dominate the market it is essential for that business to have a competitive pricing strategy.

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