What Is Competitive Pricing ?
Competitive pricing refers to the pricing model whereby firms set prices of their products or services on the basis of the rivals' prices in the market. Generally, firms set the price in three ways:
1. Higher than the price of competitors
2. Lower than the price of competitors
3. Same price as competitors
The main objective of this pricing method is to increase sales and market share.
In this post we are going to highlight some of the major pros and cons of competitive pricing strategy.
Advantages Of Competitive Pricing
The main advantages of competitive pricing are as follows:
1. Simple And Easier
It is simple, easier and faster method of pricing. It can be done just by
performing basic research and observing the price of competitors' in the
market.
2. Cost And Time Saving
Competitive pricing is based on the rivals' pricing strategy. So, company
does not need to spend more money, time and effort in marketing research
that helps to save cost, time, effort and resources.
3. Flexible Method
Flexibility is another advantage of competitive pricing strategy. Company
can set the price of products or services above, below or equal to
competitors' prices. On the other hand, this technique can be combined with
other pricing techniques such as mark-up pricing, cost plus pricing, demand
pricing etc. to set fair price and improve profit margin.
4. Less Risk
Competitive pricing is less riskier than other pricing strategies because
firms can set prices on the basis of prices of well established competitors
in the market.
5. High Profit
Because of less marketing and research related costs, it helps to decrease
the cost of the product. So, it helps to generate more profit if it is done
properly.
Also Read
Meaning and objectives of price discrimination
Meaning and objectives of price skimming
Meaning and objectives of penetration pricing
Advantages and disadvantages of cost plus pricing
6. Improve Customer Satisfaction And Market Share
Reasonable price for products and services helps to increase customer
satisfaction. It also helps to improve market share.
Disadvantages Of Competitive Pricing
The main limitations or disadvantages of competitive pricing are as
follows:
1. It may lack accuracy because it is dependent on competitors
strategy.
2. It gives more emphasize on price but ignores customers needs,
wants, preferences etc. So, this strategy may be ineffective in the long
run.
3. It is not suitable for small sized companies.
4. A company may follow the mistakes of competitors.
5. It is only a short term strategy.
