It is usually implemented by businesses that offer products and services with relatively higher or better features.įor this strategy to work, brands need to: In the price skimming or prestige pricing strategy, businesses charge higher prices compared to their competitors. Price Skimming Strategy (Premium Price Points) Read more: Role of Data Insights in Trade Promotion Optimization Strategies 2. The company successfully utilized the loss leader strategy to achieve both profitability and a customer base. Gillette, however, sold high-quality blades at high prices and made up for the initial losses. Eventually, every razor requires a replacement of blades after constant usage. The idea was to get hold of a bigger customer base.
Example:Īs part of the introductory offer, Gillette initially sold mechanical razors at rock-bottom prices compared to its competitors.
#Pricing strategy based on competition how to
You can learn how to drive more sales to your products while ensuring that the retailers abide by your MAP policies here. Many times, loss leader prices cannot be officially published so as to avoid Minimum Advertised Price (MAP) violations. More often than not, this strategy can also result in price wars where brands are forced to keep up with the competition despite making huge losses. Reduced prices lead to higher product sales, increased traffic to the business, and help the respective brand clear out its stagnant inventory. So, for this strategy to work, the profits gained from goods other than loss leaders should cover the losses from loss leaders. At times, such a price may result in losses too. A loss leader is a product or service that is sold at a significantly discounted price.
When a brand seeks to outperform another in terms of sales and increase its market share, the easiest way to do this is by reducing prices. Loss Leader Strategy (Low-cost Guarantee) Each of these strategies varies in terms of how they are executed while the end goal of beating the competition remains the same.ġ. There are different kinds of competitive pricing strategies that brands adopt to gain an edge over competitors. Or, when there are multiple substitutes available for the same. Usually, this model is implemented by businesses when their respective products or services have been in the market for a long time.
The chosen prices could be similar, higher, or lower compared to competitor brands. It involves research into competitors’ prices and selecting a price range that works best for business scalability. So, What Is Competitive Pricing?Ĭompetitive pricing is the process of choosing strategic price points relative to the competition. Of these, competitive pricing is one of the most popular pricing models and is widely used across different industries. Pricing strategies are broadly classified into seven types: It should be effective in maximizing business profits and shareholder revenues. Ideally, a pricing strategy should take consumer demand and market demand into consideration. The method employed to figure out the best price for a brand’s offerings is known as the pricing strategy or pricing model.
In the words of Katie Paine from the News group, “The moment you make a mistake in pricing, you’re eating into your reputation or your profits.”Ī brand’s pricing strategy symbolizes its value and instills consumer confidence in its offerings. The price of a product is influenced by a variety of factors including the respective brand’s revenue goals. Ever noticed how some brands price their products high and yet stay in business while some sell at low prices and still manage to make maximum profits? We are going to let you in on a business secret: Product pricing is not akin to taking a shot in the dark, it is calculable.
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