Definition of congruency: according to classical economics, two products are congruent if a consumer can somehow replace a quantity of one product by a quantity of another product without experiencing any loss in product utility.
In reality, it can be quite difficult for a retailer to define congruency when comparing its products with those of its competitors.
Are the last Apple iPhone and the last Samsung Galaxy congruent? Defining congruency is the hard part of competitive pricing. Definition of competitors: defining competition is essential in order to know which prices need to be analyzed by the firm. But competition can take on various forms as an online retailer and an offline retailer can indeed be competitors in some cases, but not in others.
For example, it is likely that online and offline book sellers are competitors as they are essentially serving the same customers. But online and offline food sellers cannot really be seen as competitors as their target market is not exactly the same.
Therefore, before being able to set a competitive price, a firm needs to carefully identify its relevant competitors. Gathering and analyzing data: once congruent products and competitors are defined, the next step consists of collecting relevant pricing data.
The frequency of scraping needs to be well-defined because it varies considerably from one business sector to another.
For example, on Amazon, prices can sometimes change almost every minute, but most retailers do not change their prices that often. What are the main issues with competitive pricing? The main issue with competitive pricing is that it can lead to missed opportunities as it can create a situation whereby all the players in a given market are blindly using the same pricing.
This results in a static market and can also create a price war or a race to the bottom. Therefore, when using competitive pricing and setting the same prices as their competitors who do not necessarily have the same fixed costs , these companies can find themselves in a situation where they are making a suboptimal level of profit.
Competitive pricing is used by virtually every player on the market. So you need a solid data collection system. Manually tracking product prices from 10 competitor websites takes 12,5 hours, so we strongly advise price tracking automation. Of course, we are talking about two extremes, so there are thousands of different price points in between these positions. Rather it means taking competitor prices as a major factor when testing out different price points.
In this case, Fitbit is able to charge considerably more because they are an established brand. Thanks to powerful branding, consumers are willing to pay much more than they would for a competitor brand.
Like with most e-commerce strategies, there are advantages and disadvantages to it. The retail giant gathers competitive price intelligence and utilizes it to offer the cheapest price in the market. Competing solely on price might grant you a competitive edge for a while, but you must also compete on quality and work on adding value to customers if you want long term success.
If you base your prices solely on competitors, you might risk selling at a loss. Instead, combine several strategies in line with your business objectives.
Competitive pricing requires you to examine the market before you decide how to price your products or services. It is a less complicated model than cost-plus pricing, for example, which requires you to factor production costs into your pricing equation.
To practice competitive pricing, determine what other businesses are asking for the same goods or services, and set prices accordingly. You have the freedom to set prices above, below, or equal to those of competing businesses.
Your business circumstances and strategic outlook will play a huge role in pricing your products at the industry level. Bicycle sellers and resellers implement competitive pricing strategies , for example. These days, you can purchase a bike from the manufacturer, your local bike shop, or a big-box retailer.
Consider a bike that you can ride on roads and trails. In a competitive pricing strategy, buyers might find a low price, a matched price, or a high price. Target has over 1, U. And with that kind of purchasing power, the company can negotiate lower prices from the manufacturer on bulk bike purchases. Large corporations can rely on greater volume, more than higher profit margins , to achieve desired revenue outcomes.
And comparison pricing would likely reveal to online shoppers that most e-commerce retailers price the bike similarly. As such, that price would be fair. They might offer an extended window for returns or a dedicated customer service rep to answer questions and resolve issues after purchase. Typically, small shop owners ride bicycles themselves and are veritable fountains of expertise.
The value of specialized, in-person service will often command a justifiably higher price. With competitive pricing, you can tailor strategies to financial objectives. New companies may use penetration pricing to get noticed in the market. Established companies can leverage promotional pricing to boost volume and revenue. Businesses that are intent on increasing sales on core and ancillary products can leverage captive pricing.
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