When a company sets a low price for a new product to discourage competition from entering the market it is using the strategy?
Content in Chapters 1-15 and 17-18 was reproduced and substantively modified from the Saylor Foundation’s http://www.saylor.org/site/textbooks/Exploring%20Business.docx under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License. The Saylor Foundation previously adapted this work under a Creative Commons Attribution-NonCommercial-ShareAlike 3.0 License without attribution as requested by the work’s original creator or licensee. Show
Chapter 16 was adapted in part from Introduction to Tourism and Hospitality in BC by Morgan Westcott, Editor, © Capilano University and is used under a CC-BY 4.0 International license. Download this book for free: http://hdl.handle.net/10919/84848; Download the original source of this chapter for free at: http://open.bccampus.ca Credits for cover
images: There’s no doubt that pricing plays an important role in the consumer decision making process. But understanding the best prices to charge for your goods or services—no matter if you run an eCommerce website or a brick-and-mortar store—can sometimes be a challenge. This is especially true if you’re a new business owner tasked with pricing your products for the first time in a competitive market. The prices you set for your goods or services influence nearly every aspect of your business, including things like your cash flow, profit margins, business expenses you can cover, and your products’ positions in the market—so choosing them wisely is critical for business scalability and staying competitive in your niche. Thankfully, there’s a tried-and-true pricing method that several businesses can turn to: competitive pricing. If you’re unfamiliar with competitive pricing strategies, this guide is here to help you get a foothold. Below, we will break down just what competitive pricing is, it’s benefits and disadvantages, as well as show you some real-world examples of competitive pricing to help you get started. What Is Competitive Pricing Strategy?Competitive pricing is the process of strategically selecting price points for your goods or services based on competitor pricing in your market or niche, rather than basing prices solely on business costs or target profit margins. Competitive pricing is typically used by businesses that sell the same or highly similar products in the same market for an extended period, as prices of these products often reach a level of equilibrium. 3 Competitive Pricing StrategiesUsing a pricing strategy based on competition, businesses have three choices when establishing prices for their goods or services:
Benefits of Competitive PricingWhen equipped with comprehensive competitor pricing data, implementing a competitive pricing strategy can benefit your business in several different ways. Increase TrafficNo matter if you’re starting a brand-new business or you’ve been selling in your market for years, increasing traffic to your store—be it eCommerce traffic or in-store foot traffic—helps you get your brand out there. Using a competitive pricing strategy, you can incorporate discount strategies and tactics such as offering a lower price than your competitors or implementing a loss leader sales campaign—both of which can help you attract more consumers, create more leads, and increase sales. Prevent Market Share LossesCompetitive pricing strategies—especially those that implement pricing software to capture competitor data in real-time—enable you to analyze and react to pricing changes your competitors make on the fly. Not only does this help you make more strategic decisions in the long run, but it helps you prevent market share losses because you are able not only to anticipate and consider competitors’ prices dynamically, but also keep track of margin levels for the business. By always ensuring your prices remain market relevant, shoppers will be less likely to turn to your competitors and more likely to buy your business’ goods or services. Boost Profit MarginsSelecting competitive prices for your goods or services doesn’t always mean taking profit losses. If your goods or services are priced lower than your competitors, there could be room for you to raise your prices while remaining competitive and boosting profit margins. This is especially true if your goods or services have a unique value proposition (UVP) compared to your competitors. A business may differentiate from the competition, if it can uncover and consider specific product attributes like different packaging, additional accessories to the product etc. that bring more value to customers and increase their willingness-to-pay. If it’s able to incorporate that information well into its competitive price strategies, then the pricing will be market relevant and profitable. Another way is to provide your customers with unique and frictionless shopping experiences, way better than those of the competitors. Deploy Dynamic Pricing StrategiesImplementing a competitive pricing strategy is the first step to deploying a dynamic pricing strategy. Using a dynamic pricing solution, the prices of your goods or services are constantly adjusted in real-time based on changing variables like raw material costs, market demand, seasonality, inventory levels, freight costs, etc. These solutions will also provide you with visibility into pricing trends across several similar products within your market, as well as competitor pricing fluctuations. The ability to push the right prices on the market is especially important in eCommerce channels where buyers are able to research and compare similar products before they decide to engage with businesses and put in orders. Disadvantages of Competitive Pricing StrategyPricing your goods or services competitively can also come with inherent disadvantages and risks. For example, if you focus solely on selecting prices for your goods or services based on prices your competitors set, you could have a difficult time covering manufacturing costs or your business’ overhead expenses. What’s more, relying on competitor prices as your only source of truth for current prevailing market prices could be risky, as some of your competitors could have incorrectly priced their items. Establishing a comprehensive competitive pricing strategy can also be costly for newer businesses, especially when it comes to hiring pricing teams or deploying automated competitor price monitoring tools or dynamic pricing software. Competitive Pricing ExamplesTo get a better idea of how you can incorporate competitive pricing into your business’ selling strategies, we’ve listed out a few examples below:
Ensure Your Prices Stay Competitive with PROS PlatformImplementing a successful competitive pricing strategy means you must have a streamlined way to gather and analyze data from your competition and your niche market—as well implement changes on the fly. Rather than constantly reviewing market price fluctuations or your competitors’ prices and making subsequent cumbersome adjustments to price lists, PROS Smart Price Optimization and Management software can help you streamline workflows and focus on making strategic pricing decisions, instead of manually collecting and analyzing information. Using cutting-edge artificial intelligence (AI), the PROS Platform enables you to deploy omnichannel pricing strategies that keep you competitive in real-time and prevent you from pricing pitfalls such as over-discounting or pricing inconsistencies. Start making smarter pricing decisions today – learn more about the PROS Platform for Pricing Teams today. What is the pricing called when it starts low then goes high?Penetration pricing is a pricing strategy that is used to quickly gain market share by setting an initially low price to entice customers to purchase. This pricing strategy is generally used by new entrants into a market. An extreme form of penetration pricing is called predatory pricing.
What is market skimming strategy?a pricing approach in which the producer sets a high introductory price to attract buyers with a strong desire for the product and the resources to buy it, and then gradually reduces the price to attract the next and subsequent layers of the market. See: Market Penetration Pricing.
What do we call it when a business sets an artificially low price to win market share?Penetration pricing: price is set artificially low to gain market share quickly. This is done when a new product is being launched. It is understood that prices will be raised once the promotion period is over and market share objectives are achieved.
What are the 4 pricing strategies?What are the 4 major pricing strategies? Value-based, competition-based, cost-plus, and dynamic pricing are all models that are used frequently, depending on the industry and business model in question.
|