What is a Competition based pricing method?

In this competition based pricing method, the price is determined based on competition in the market. Price is determined by considering competition, price sensitivity and cost.Competitive pricing strategy is the strategy used by a company to fix the price of a product by keeping the view of competitors.

This can be done in following ways −

• High price − By making modifications or adding extra features to the product, a higher price is set than its competitors.

• Low prices − Increasing volumes by maintaining the same product cost. By analysing the price structure of competitors with available resources and making necessary changes in price determination.

• Same cost − If the product has more features than its competitors with the same cost, then only the respective company can gain in market.

The building strategy with regards to the competition based pricing is as follows −

• Identifying competitors.
• Doing research on competitors.
• Making detailed reports on their pricing structure and averaging them.
• Choosing suitable competitive pricing strategy high, low or similar price.

Advantages

The advantages of the competition based pricing are as follows −

• Easy to understand and calculate.
• Less risk.
• Understanding the market and gaining appropriate market share.

Disadvantages

The disadvantages of the competition based pricing are as follows −

• Focus on only one sector in the market.
• Flexibility is limited.
• More focus on competitors than customers.