Competitive pricing is a strategic approach in which businesses establish their prices by taking into account the pricing information of their competitors. This method is utilized in both online and offline markets with the objective of attracting a wider customer base and achieving a stronger market position. However, in order for competitive pricing to be successful, businesses must possess a thorough comprehension of their competitors’ pricing strategies and the way consumers perceive value. Retailers often rely on price monitoring solutions to gather this crucial information.
According to the findings of Google’s Global Retail Study, it is clear that a substantial 87% of surveyed consumers prioritize obtaining a favorable deal when making purchasing decisions. As a result, brands should give due consideration to their competitors’ prices as a significant determinant when establishing the pricing of their products and services. The implementation of competitive pricing necessitates the evaluation of multiple factors, including the business’s cost structure, the prevailing prices of comparable products in the market, and customer demand.
Below we will describe 6 methods of effective competitive pricing, so some of the solutions will definitely suit you.
6 Effective Competitive Pricing Methods
1. Dynamic Pricing
Ensuring your competitive edge in the market is paramount, and relying solely on manual price adjustments just won’t cut it anymore. Staying on top of daily pricing fluctuations without the help of automation is an uphill battle, especially with additional responsibilities like holidays, sick leaves, and other tasks that retailers juggle daily.
Enter dynamic pricing, facilitated by cutting-edge pricing software that seamlessly integrates with your online store and boasts a robust rules engine. This intelligent system guarantees that your prices are constantly updated and prominently displayed on your website, aligning with your chosen pricing strategy, whether it involves consistently matching the average market price or something equally effective. By embracing this automation, you can confidently maintain the optimal price position for all your products every single day, ultimately increasing visibility in search results and driving conversions.
2. Price Matching
In this realm, we delve into the realm of price matching, a strategic approach aimed at synchronizing your prices with the prevailing market standards. If you run an e-commerce business selling popular products found across several retailers, it’s imperative to at least match the benchmark price, i.e., the average market price. Why? Well, the Google algorithm heavily relies on benchmark prices to evaluate the relevance of your product, influencing its position in search results and the associated costs of Google Ads.
The closer your price aligns with the benchmark, the greater the chances of your product surfacing for relevant search terms, simultaneously reducing your dependency on Google Ads expenditure. Undoubtedly, enhanced visibility in searches presents a golden opportunity to generate sales. Conversely, if your product doesn’t register on the search radar, the likelihood of converting potential customers is slim to none – it’s as elementary as that.
3. Penetration Pricing
Penetration pricing (if you want to study this method in more details, you can read about it in this source https://blog.blackcurve.com/whats-your-pricing-strategy-a-look-at-penetration-pricing) is a pricing strategy that involves setting a lower price compared to your competitors. The goal is to entice customers to make a purchase due to the lower price.
For instance, by using penetration pricing effectively, you can drive financially weaker competitors out of the market if they can’t compete on price, or confine them to smaller niches. However, it’s important to exercise caution because lower margins resulting from this strategy may impact product quality or customer service, potentially leading customers to return to more expensive competitors. It’s important to note that being the cheapest does not earn you rewards from the Google algorithm. As discussed earlier, the benchmark price is the key data point.
Therefore, if you decide to implement penetration pricing, we recommend considering the Lowest Competitor price and matching against it. This way, you can increase your chances of appearing at the top of search results without compromising too much on your margins.
4. Free Shipping
We always advise retailers to include free shipping in their prices (with the option of longer lead times for shipping). This eliminates a decision barrier during the checkout process, reducing the likelihood of cart abandonment. On Google Shopping, end users see the Item Price (including VAT but excluding shipping) and the Total Price (including shipping). The Google algorithm primarily uses the Total Price to determine search relevance.
For example, if your shipping price is free, you don’t have to worry about any misalignment. You can simply match your pricing to the Total Price. However, if your checkout structure requires the addition of shipping and you can’t remove it, we still recommend matching to the Total price while subtracting the shipping cost from your price calculation. In this case, your Item Price may differ from your competitors, but your Total Price remains relevant. Ensuring relevance with the Total Price will help maintain a higher search result position, thereby improving your chances of conversion.
5. Psychological Pricing
Are your prices appearing random? Lots of numbers like £43.56 or £112.46? Consumers have developed a preference for Charm Pricing, backed by numerous studies. Although it may seem illogical upon further inspection, our conditioning means that retailers should pay attention.
For example, low-priced products should be rounded to the nearest 99p. Meanwhile, higher priced products should be rounded to the nearest £9. When a product is priced at £9.99, buyers perceive it as closer to £9 rather than £10, even though it’s only one penny less. Similar strategies can be applied to larger amounts.
Moreover, this pricing approach helps prevent cart abandonment. As consumers, we have become accustomed to these prices. Any odd prices tend to make us pause and wonder, “Is there something wrong with this product?” By utilizing psychological pricing tactics, not only can you potentially increase your profit margin, but it also improves conversion rates during the checkout process. So, it’s essential to make sure your prices appear visually appealing and align with our conditioning.
6. Price Change Frequency
Try experimenting with the frequency of price changes, specifically the days of the week when your competitors are adjusting their prices. By utilizing competitive pricing tools like BlackCurve, which provide insights into the days when your competitors are changing prices, you can easily identify opportunities to exploit competitors who are not using price automation (those who change prices less frequently) or those who only adjust prices a limited number of times during the week.
For instance, let’s say you discover that some of your competitors are changing prices less frequently on certain days. In response, you can activate automated pricing adjustments on a daily basis. This strategic move allows you to maintain price relevance and visibility on the days between your competitors’ price changes, giving you an advantage and increasing the likelihood of winning market share.
By actively managing and optimizing your pricing frequency, you can enhance your conversion rates and position yourself competitively in the market.