Companies that outperform competitors in their industry don’t get there by chance. So, what is their secret? The answer is simple: they have access to invaluable competitive and consumer insights.
Pricing is one of the most important factors in determining a company’s success, and getting it right is a task that keeps CEOs and Pricing Managers awake at night. Competitive-based pricing is a strategy businesses use in most industries, but it doesn’t come without risks. Successful competitor-based pricing strategies rely on accurate real-time product and pricing data to keep companies one move ahead of the competition, avoid price wars, and grow profit margins.
Running a competitive analysis is vital for implementing an effective competitor-based pricing strategy (or arguably any pricing strategy), so let’s look at how it’s done.
What is competitive pricing?
A competitive pricing strategy focuses on the external market — competitors and consumers — to determine a price rather than looking at internal factors like the cost of production. Businesses have three broad options when it comes to competitive pricing strategies.
- Set a higher price than competitors (premium pricing)
- Set the same price as competitors (price matching)
- Set a lower price than competitors (loss leader pricing)
This type of pricing model is commonly used in highly competitive markets where price-sensitive consumers have many product options to choose from. A competitive pricing strategy is not recommended for companies whose offering is unique with little competition.
What is a competitive price analysis?
A competitive pricing analysis is a deep dive into the market to uncover where competitors are setting their pricing in relation to you. A good competitive price analysis will consider things like the competitive landscape (direct and indirect competitors), the variations in products and services, sales volumes, consumer segments and demand, and general market conditions.
Benefits of a competitive price analysis
Today’s customers have more information than ever at their fingertips. According to Google, 53% of shoppers say they always do research before making a purchase, and 87% say that knowing they got a good deal is important when deciding what and where to purchase.
If a company intends to beat its competitors while remaining profitable, it needs accurate pricing data. Running a competitive pricing analysis has several clear benefits.
1. Find competitor weaknesses
A thorough pricing analysis can reveal lucrative opportunities in competitors’ weak spots. From a pricing perspective, a deep dive into the market may uncover areas where competitors are not serving specific customer cohorts well. Agile companies with access to real-time competitive data via pricing tools like Flintfox’s Pricing Engine can identify these gaps and capitalize on them quickly and easily.
2. Grow profit margin and market share
The more consistently a company can set the “right” price for its products and services and take advantage of the chinks in its competitors’ armor, the more likely it is to grow its profit margin and market share. Conducting a competitor price analysis means a company is also less likely to make costly pricing mistakes or get into fierce price wars.
3. Understand consumer behavior
What convinces a consumer to switch from one brand to another? Cost is often a deciding factor, but it’s not as simple as offering the lowest price. Competitive analysis can uncover interesting consumer behavior trends, like price sensitivity, value perceptions (reviews are a great source of insights here), customer satisfaction, purchase cycles and cadence, and brand loyalty.
4. Play the long game
A competitive pricing analysis can also help companies stay ahead of the competition today and in the long term. The pricing decisions a company makes today may not be effective in the future as markets evolve. Innovative pricing tools model vast data sets, including historical data, to give companies an informed macro view and forge a path to future success.
Challenges of running a competitive pricing analysis
A competitive pricing analysis will undoubtedly give you access to invaluable insights, but it doesn’t come without its difficulties.
1. Inaccurate data
Your pricing analysis will only be as good as the data you use. Pulling inaccurate data or out-of-date information will skew your results and confuse your reporting. Use the right tools to generate real-time data and draw the insights you need.
2. Incorrectly categorized competitors
Running a pricing analysis on the wrong competitors or products won’t do any good for your business and will waste time. Put in the legwork in the initial phase to be sure you’re looking at the right pool of direct competitors with like-for-like products before you dive deeper into value propositions and price comparisons.
3. Grappling with multi-channel retail
Today’s retail industry has become increasingly complex with the introduction of e-commerce and multi-channel retailing. When conducting a competitive pricing analysis, it’s important to remember that brands may have multiple price points and pricing strategies for different channels. E-commerce pricing may differ from in-store pricing, and manually pulling all this data together can cause headaches.
4. Time and money
Conducting a pricing analysis can demand significant resources from your business. It must be done properly so the results can inform your optimal pricing position.
How can I perform a competitive pricing analysis?
You can conduct a competitor pricing analysis manually or with the help of pricing software. These are the steps to follow.
1. How to identify your true competitors
Unless you’re at the very beginning of your journey, you likely have an idea of who your direct competitors are. Even so, it pays not to make assumptions. Use Google (like your potential customers do) to search for your product or service and see who ranks near the top of the search results.
Dig a little deeper and check out the details of the products or services to determine whether they are direct competitors; look at what geographic area they cover, their products and services, price points, and how and where their products are sold. For example, if they only sell online or in a particular state, whereas you offer a multi-channel retail experience nationwide, you may not be in direct competition. The rule is to look at companies competing for the same potential customers as you.
2. Categorize direct competition vs. indirect competitors
It’s also important to consider your indirect competitors. These companies may not appear like competitors at first glance, but upon inspection, they compete for some of the same customers as you. For example, if you sell designer sunglasses online, your direct competitors may be other e-commerce websites, but indirect competitors could be brick-and-mortar stores and markets.
Again, use the same search methods to find these indirect competitors as your customers do. You could also use keyword research tools like SEMrush or Ahrefs to discover which companies are competing for the same keywords as you, those that aren’t, and where they rank in Google. This exercise can reveal gaps you can fill with your price and value proposition.
3. Compare value propositions
Now you have a categorized list of direct and indirect competitors, it’s time to review value propositions. This will give you a sense of where you sit concerning the competition and whether you are competing on price alone. Consider things like:
- The quality and features of your competitor’s products or services
- How they are branded, packaged, and presented
- Customer reviews and perceptions of value
- Marketing materials
- Keywords they rank for on Google
4. Compare competitor prices
If you do this manually, you’ll need to create a spreadsheet listing each competitor, their products or services, and their price points. If you’re using software like Flintfox’s Pricing Engine, you can search, filter and export competitive pricing data, ready to analyze.
This step is not as simple as looking at competitors’ current prices and making your own pricing decisions based on this information. You need to look at the broader picture and consider each competitor’s overall pricing strategy. This includes asking questions like:
- Are their prices above, the same, or below the market average?
- Are they using a premium pricing strategy, loss leader, price-matching, or some other type of pricing strategy?
- What value do they offer customers for the price they charge?
- Do they offer discounts, and are these at certain times?
- What does historical data tell you about how their prices or pricing strategies changed over time, and why?
- Where do your products or services sit in relation to your competitors, and are there any clear pricing gaps you can fill?
Implementing a competitive pricing strategy with the Flintfox Pricing Engine
Pricing is a fine instrument that can make or break businesses. So, how can you grapple with the evolving commercial landscape to gain a competitive advantage? Innovative companies have moved away from manual pricing towards faster, simpler, and more accurate pricing tools.
The Flintfox Pricing Engine gives you real-time access to huge sets of data in one simple platform. In highly competitive and price-sensitive markets, our dynamic pricing tool allows you to implement price changes automatically without eroding margins. Having this competitive pricing data at your fingertips means you can empower your sales team to make accurate pricing decisions on the fly and beat out the competition.
Take your business to the next level with intelligent pricing software from Flintfox. Get in touch with our team of experts to discuss how we can help you today.