Conducting Сompetitive Pricing Analysis for Competitive Pricing Strategy

Vladimir Kuchkanov,

Product Manager at Competera

Content navigation:

• What is Competitive Pricing and Pricing Analysis?
• The Difference between Pricing Analysis vs. Competitive Pricing Analysis
• Comprehending Competitive Pricing
• What is Competitive Pricing Strategy?
• Why Is a Competitive Pricing Strategy Important for Pricing Analysis?
• Competitors Pricing Strategies: Examples from Retail
• Benefits of Competitive Pricing Analysis
• How to Compare Competitors Pricing Smartly
• What Challenges May Occur With Competitive Pricing Analysis?
• Conclusion

What is Competitive Pricing and Price Comparison Analysis?

Competitive pricing analysis is an evaluation of the consumers' reaction to new prices using research based on historical data or polls. Most often, price analysis examines customers' responses to a price without considering the costs and potential profits for the business. After an initial price competitive analysis, the pricing analyst team uses the findings along with the other pricing factors to craft an optimal offering. Carfting the latter is possible after you understand how does competitive pricing affect consumers.

Here is another definition: competitors pricing strategy is a pricing policy based on benchmarking competitors’ price points to set own prices. This type of strategy is often referred to as competition-based or competitor-based pricing. In most cases, the business comes to a competitive pricing policy after a cost-plus approach turns out to be no longer relevant.  

What Is the Difference between Price Comparison Analysis vs. Competitive Pricing Analysis?

These terms are distinct and not interchangeable so a mastery of both is essential. A competitive pricing analysis focuses specifically on evaluating your competitors' pricing strategies and determining how to set your product's price to maintain competitiveness. In contrast, "price comparison analysis" is a broader term encompassing considerations beyond a competitor price strategy. It takes into account factors such as consumer behavior and their willingness to pay. Essentially, a competitive pricing analysis is often a component within the broader framework of a price comparison analysis.

How to Comprehend Competitor Pricing Data?

When determining the price for a product or service, businesses face three options: setting it below, at, or above the competition costs. So, how to find competitor pricing policy that would work best?

Opting for above-the-competition pricing entails creating an environment justifying the premium, such as offering generous payment terms or additional features. In this scenario, the business competes on quality rather than price to justify charging a premium.

A business might choose to set the price below the market, potentially incurring a loss, with the expectation that customers will purchase other products from them once exposed to additional offerings. The profitability of these other products can then offset the economic loss incurred on the below-market-priced product, a strategy commonly known as a loss leader.

Alternatively, a business can opt to charge the same price as its competitors or adhere to the prevailing market price. Despite trading an equivalent product at an equivalent price, the business may still seek to differentiate itself through strategic marketing efforts. Now, let's find out what is competitive price strategy. What is obvious is that being aware of the competitive pricing definition is not enough. 

What is Competitive Pricing Strategy?

Competitive pricing strategy a pricing approach where businesses set their product prices based on the prices of their competitors. This method enables retailers to stay relevant in the market, attract price-sensitive customers, and maintain competitive positioning. By continuously monitoring and analyzing competitors' pricing landscape, businesses can adjust their prices dynamically to remain in line with, or slightly below, their competitors.

​​Importance of competitive pricing policy stems from the fact that it remains particularly effective in industries with high price transparency, such as retail and eCommerce. It allows businesses to offer value while ensuring they don’t price themselves out of the market. For instance, many retailers adopt a comparative pricing strategy, showcasing competitor prices alongside their own to highlight savings for customers.

Competitor price optimization often involves advanced pricing tools and algorithms. These solutions analyze competitors’ pricing data and market trends in real time, empowering businesses to make informed decisions. Pricing competitive strategies can also be tailored to customer demand, seasonal trends, and inventory levels to optimize revenue and profitability.

While adopting a competition pricing strategy, it’s essential to balance competitive prices with operational costs to avoid eroding profit margins. In today’s fast-paced retail environment, using competitive pricing solutions ensures businesses stay agile, meet customer expectations, and enhance their market share. By understanding what is competitive pricing strategy, businesses can navigate the challenges of pricing competition effectively.

Why Is a Competitive Pricing Strategy Important for Price Comparison Analysis?

According Statista research, up to 84% of buyers compare competitors prices of several stores in search of a better bargain. Retailers who can collect and analyze market data, map their position against competitors, and offer optimal prices are the companies that catch these buyers’ eyes first and foremost.

Competitive pricing is a strategy that helps businesses attract more customers by optimizing prices using competitor products and pricing data. A successful pricing analysis can significantly increase sales, result in better cooperation with suppliers, and boost revenue.

Competitors Pricing Strategies: Examples from Retail

Competitors pricing strategies play a significant role in retail economics, as brands continually adjust their prices to outpace rivals and capture market share. Retailers such as Target and Best Buy employ competitive pricing strategies to remain attractive to customers while balancing profitability.

Target, for example, adopts a competition pricing strategy by offering price matching. Their pricing strategy competitive allows customers to compare Target’s prices with competitors like Kohl’s or Costco, ensuring loyalty through perceived fairness. Using price comparison with competitors tools, Target ensures it stays competitive in the fast-changing retail landscape.

Best Buy integrates competitor price optimization software to analyze market reports and rivals’ prices. By implementing pricing strategies competitive with automated solutions, the company adjusts prices in real-time for products like electronics and appliances, enabling them to offer competitive deals without sacrificing margins.

European supermarket chain Lidl demonstrates a competition price strategy by focusing on comparative pricing strategy. Lidl monitors rival chains like Aldi, ensuring their everyday low prices remain slightly undercut. This strategy relies heavily on competitors price analysis to maintain its reputation as a low-cost leader.

In e-commerce, Zara uses competitive pricing solutions to optimize its fast-fashion pricing. Zara combines market research with competition pricing strategies to dynamically set prices for seasonal collections, ensuring competitive positioning while retaining premium branding.

These examples showcase how retailers employ competitor pricing strategies and utilize technology to stay ahead, adapt to market trends, and meet customer expectations in competitive retail economics.

What Are the Benefits of Competitive Pricing Analysis?

There are several benefits of competitive pricing analysis, which include:

1. Increased profitability: Market pricing analysis can help businesses identify opportunities to increase their prices without losing market share. By understanding the prices of their competitors, businesses can compare competitors prices and adjust their own policies to make it both attractive and profitable.

2. A better understanding of the market: Competitive pricing analysis allows businesses to gain a better understanding of their market and competitors. This understanding can help businesses develop more effective marketing and sales strategies, and identify areas where they can differentiate themselves from competitors.

3. Improved product positioning: Competitive price strategy can help businesses to compare competitive price and determine the best pricing strategy for their products and services. This can include identifying the optimal price points for different customer segments and determining the right price to position the product as a premium or value offering.

4. Faster response to market changes: By regularly monitoring competitor pricing and market trends, businesses can respond quickly to changes in the market. This can help them stay ahead of the competition and adapt to changing customer needs.

5. Better customer acquisition and retention: By offering competitive prices, businesses can attract new customers and retain existing ones. Customers are often price-sensitive, and offering competitive prices can be a critical factor in choosing one business over another.

Overall, competitive pricing strategies based on the analysis of competitor prices can help businesses make better pricing decisions, increase profitability, and gain a competitive edge in their market. The next question is how to compare competitors pricing with accuracy and efficiency.  

How to Compare Competitors Pricing Smartly

1. Determine Quality of Competitor Pricing Data

Complete and accurate data is crucial to analyze competitor costs and gain market insights. We surveyed our clients from several different countries to determine the following criteria as crucial to high-quality data:

• Depth of comparisons. Retailers need to take everything into account regarding product information: color, technical characteristics, and other product attributes are vital for high-quality data and are also not available on product cards.
• Percentage of errors. Most data matching is done using automation and is prone to a degree of error as a result. Manual comparison enhances automatic solutions and ensures better results.
• The ratio of planned and delivered data. Data can be incomplete since the algorithm may lack information that is not available on the competitor’s website. This means that the amount of data estimated before collection may exceed the amount of usable data that is delivered.
• Constantly updated data. Retailers should use the data collected no later than two hours before repricing.
• Data delivery time. Product and pricing data should be delivered to the retailer’s internal system every 20-30 minutes to make comparison analysis more effective.

2. Define Data Parameters

Next, the company must determine competitors price analysis techniques and parameters. Just a few competitive pricing graph examples:  

• Price Index. This competitive pricing graph displays the retailer’s position in the market for a given product or class of products over a certain time. The price index visualizes how market dynamics affect sales and delivers data on prices listed by competitors.
• Competitors’ promo activity. In the same study, Forrester Consulting indicated that at least a third of customers are trying to find discounts before buying an item. This means it is essential to continuously monitor discounts and sales of others in the industry to optimize promotional offers.
• Product availability. By monitoring competitors and their product stocks, retailers can adjust their prices based on the supply of an item or class of items on the market at a given point in time.
   

Many retailers think competitive pricing consists only of peer group analysis. However, competitive price analysis also requires a thorough study of internal company data (i.e. historical data) in addition to data revolving around competitors. It is impossible to set optimal prices and succeed with competition-driven pricing without having a profound knowledge of the market and your position in it as a retailer.

The abovementioned parameters are just a small part of the competitor price data that can be monitored by retailers. Depending on business goals and logic and rules used while repricing, you can add another relevant competitive pricing graph, e.g. stock level, sales volume, eCommerce traffic, promotions, etc. 

3. Categorize Competitors

Once retailers have thorough data about their competitors, they need to classify competitors according to several factors including but not limited to the target audience and product quality. There are three main categories that market competition can be divided into:

• Primary — direct competitors who pursue the same buyer category.
• Secondary — competitors who focus on upscale/downscale versions of the retailer’s assortment. Analyzing competitors of the secondary-level allows businesses to develop a broader idea of their place in the market and boost their strategic skills accordingly.
• Tertiary — companies selling products that are indirectly relevant to those of the retailer. Analyzing this level of competition helps retailers willing to expand their assortment.
   

Categorizing competitors makes market analysis less time-consuming and allows retailers to focus their attention in the right direction in terms of competition.

A data-driven competitors price analysis techniques could also be applied while defining and categorizing the competitors. If you are a mono-brand retailer or sell a very limited number of SKUs, you'd probably be able to categorize competitors manually. But for large sellers with thousands of products offered across different pricing zones, the smart competitors' analysis has no alternative. 

Beyond that, each product's competitive landscape is unstable as other retailers change their strategy and new players enter the market. What it means is that competitive analysis and categorization are ongoing processes that should be done more or less often depending on the product type or market segment.

To cover this need, Competera offers a so-called 'True competitors' competitive pricing graph enabling retailers to find the real impact every player has on particular SKU sales by analyzing retailers' and competitive historical data.   

4. Perform a Smart Market Pricing Analysis  

It could be easily done by using machine-based pricing tools. Modern retail companies are increasingly leaning towards algorithms to collect and analyze data. Machines have significant benefits over manual methodologies:

• Improved accuracy
• Can process large amounts of complex data
• Scheduled delivery
• Provide precise pricing recommendations.
   

Arguably, the most important aspect of implementing automation into the price analysis techniques is that it allows retail teams to switch from routine tasks to strategic tasks regarding pricing strategy and price management.

When it comes to automated price analysis techniques, most retailers are afraid of extra costs. The fact is that these solutions are instead a means of cost reduction. For example, Wiggle CRC managed not only to reduce the repricing time by 50% but also to get a full view of the market at lower costs. The latter was achieved mainly through monitoring marketplaces instead of competitors' websites. 

If you want to know not just how to compare competitors pricing, but want to get tips on reducing competitive data monitoring costs, watch the video below. 

5. Track Competitors’ Online Activity

To have a better understanding of the market, retailers should monitor their competitors and their platforms such as official websites and social media accounts. There are several aspects businesses need to examine:

• Product descriptions
• Visual presentation
• Social media activity
• If the websites and social media accounts are mobile-friendly
• Customer support and feedback options
• Response rate
   

In addition, retailers can sign up for official newsletters and become a followers of their competitors on social media. Businesses need to understand what attracts clients to their competitors’ products.

These are several examples of how retailers can benefit from open-source information. The more key points they identify and analyze, the better their information will be to base important pricing decisions on.

What Challenges May Occur with Competitive Pricing Analysis?

Businesses encounter various challenges in employing competitive pricing analysis. A significant hurdle involves ensuring the accuracy of the analyzed data, which demands meticulous collection and examination from multiple sources, often a time-consuming and costly process prone to errors or inconsistencies. Limited data availability poses another obstacle, particularly for smaller businesses striving to gather ample information on competitors' pricing strategies, hampering their ability to compete with larger counterparts. 

Identifying suitable competitors for analysis, especially in saturated markets, can be daunting. Merely examining competitors' prices in isolation may mislead, necessitating a comprehensive evaluation considering factors like product quality, customer service, and marketing strategies. Moreover, the dynamic nature of market conditions presents a challenge, demanding businesses to swiftly adapt to changes in competitors' pricing strategies for sustained competitiveness. While price competition solutions offer valuable insights, businesses must be cognizant of these challenges, taking measures such as refining data processes, investing in data acquisition tools, and considering broader market contexts to enhance the accuracy and utility of the analysis.

Conclusion

Creating competitors pricing strategy from scratch is no easy feat. Many factors revolving around data, such as parameters and quality, must be carefully considered. Companies must decide whether they will utilize automation within their pricing process and if so, to what extent. Lastly, they also must thoroughly study their competitors to obtain a better understanding of their place in the market to excel in it truly.