Competitive Pricing – Definition – WorkIT Software

Competitive Pricing – Definition – WorkIT Software

What is competitive pricing?

For starters, competitive pricing can basically be defined as the standard setting of prices of both products and services based on competition pricing.

Competitive pricing is normally applied by businesses dealing with similar products, since services vary from entity to entity, while the features of a product remain identical. Price is an essential component when it comes to the marketing mix and as such, pricing can make or break a business. Discover our price monitoring software and our price tracker to improve your pricing strategy  !

PRICING STRATEGY OPTIONS

Competitive pricing is one out of four main pricing strategies. Other pricing strategies include:

  • Mark-up pricing which involves adding a percentage to the cost of the wholesale product
  • Demand pricing established by determining the relationship between profit and volume
  • Cost-plus pricing whereby a profit margin is included in the cost of the product.

 

 

COMPETITIVE PRICING CONCEPT AND ADVANTAGES

While competitive pricing depends on the competitors’ prices, certain factors also come into play when it comes to competitive pricing such as branding objectives, market penetration tactics, and also the exact price level.

As such, when a business wants to enhance its market share, then the business’s objective should be to have the lowest price in the competition. On the other hand, if a business wants a successful brand image, then it would be effective to price its products higher than its competitors to be able to exhibit the image of quality.

Therefore, competitive pricing method is normally used in highly charged competitive markets as well as within well-established entities the assumption being that equilibrium price has already been achieved. Some of the merits associated with competitive prices include:

SIMPLE TO ADAPT

This method is simple to adapt and implement as competitors prices are usually publicly displayed thus making it easy to adapt to. This is widely applied in the retail industry which deals with similar products, making it more efficient to adapt than to implement other pricing strategies.

LEADS TO EQUILIBRIUM

With many retailors opting for competitive pricing method over other methods, the retail industry has been able to achieve a stable equilibrium price over the recent years due to the sheer nature of customers it attracts and sales it makes.

LOW RISK

Competition pricing is also associated with low-risk as the risk is spread across the board. For instance, if the prices of specific products result in bankruptcy, the impact will be felt in other businesses.

 

 

FACTORS TO CONSIDER WHEN ESTABLISHING COMPETITIVE PRICES

  • Life cycle of the product

In order to establish the optimal competitive price, it is important to consider the life cycle of the product and in which stage the product is. If the product is in its development stage, you can always opt for other pricing options other than competitive pricing. However, if the product is having relatively high number of substitutes, considering your competitors price is important to ensure the profitability and survivability of your business.

  • Consumer buying behaviour

Considering consumer purchasing behaviour is also an important aspect when it comes completion based pricing strategy. Some of the factors that business should take into account include competition, price sensitivity, and costs. Hence, it is essential for businesses to set price that fully cover all the production costs and its overhead costs in order to offer sustainable profits.

Read More :
What is MAP Pricing ?
Competitive Price Intelligence

Competitive Price Intelligence: 7 things to know

Competitive Price Intelligence: 7 things to know

Competitive Price Intelligence is the practice allowing a company, a retailer or a brand, to track competitor’s prices on a permanent or regular basis, in order to monitor its position within the market relative to competitors.

 

1 • COMPETITIVE PRICE INTELLIGENCE: WHAT IS IT?

Hence, a retailer can get insights into the market it operates in and adapt its distribution strategy so to gain competitiveness. On the other end, a manufacturer can control its retailers’ actual pricing strategy for its own product range. That is why the use of competitive price intelligence tools is essential to develop an efficient sales strategy and constantly help secure its position on highly-developing markets, or to optimize the profit margin, on busy and competitive markets.

Given the increasing demands from the market, companies are now struggling to perform this practice manually. Indeed the quantity of data to process and the booming e-commerce market prevent them to do so. Therefore they now turn more and more to external solution providers, who bring them the intelligence they need whenever they need it.

 

 

2 • WHO IS USING COMPETITIVE PRICE INTELLIGENCE SOLUTIONS?

This method is mainly used by retailers seeking to position themselves on their market, but also by manufacturers seeking to monitor their products’ sales performance, as well as the respect showed by their distribution network for their trade policy. Some retailers may also use conversion rate optimization tool to optimize their performance, such as Omniconvert.
For example, in Europe, the main players of the volume retailing industry actively use competitive price intelligence to monitor constantly their market position: CDiscount, Dixons, ShopDirect, Fnac, Bosch, Sony, Samsung and many others…

 

3 • COMPETITIVE PRICE INTELLIGENCE: WHAT IS IT FOR?

The use of competitive price intelligence tools allow to better understand the pricing strategy of the different players on a target market. Made aware of the market’s evolution and trends, the company is empowered to adapt its sales strategy accordingly, so to increase its product mix and product range’s competitiveness, and monitor the performance of its pricing and sales policy.

Technological advancements make the competitive price intelligence process much easier, thanks to new specialized software. They allow companies, brands and retailers, to take a deep dive into analyzing their own positioning on the market, as well as their competitor’s, at different levels: mix, range, products, etc. This way, companies are provided with a clear vision of their market’s state, their competitiveness and positioning relative to the competition.

Therefore, competitive price intelligence allows the players of volume retailing industry to always stay aware of markets moves, especially during periods of intensive promotional activity (sales, New Year etc.), and optimize their prices accordingly. This help them maintain, nay increase their margin ratios. Finally, companies are also able to ensure consistency.

 

4 • THE DIGITIZATION OF COMPETITIVE PRICE INTELLIGENCE VS THE BOOM IN E-COMMERCE.

Over the last few years, the boom in e-commerce activities has deeply transformed the retailing industry. In 5 years, the number of online retail stores has been increased by more than 3, and the French online business industry has, by itself, more than 100,000 retailing websites, more than 75% of distance selling industry. On top of that, Internet forces the retailing industry to be constantly more flexible and responsive, which increases the brands and retailers’ needs for an efficient price intelligence strategy, especially against their fellow e-commerce players.

In an interview dated November, 24th, 2014, Bernard Euverte, President of WorkIT Software, a software provider specialized in competitive market intelligence, states that at first:
“Nobody cared about online prices, e-retailers were contenting themselves with being the least expensive as possible, and brands were hardly paying attention to e-commerce. Internet has quickly established itself as THE market reference for pricing strategies, even in brick-and-mortar retail stores”.

In fact, e-commerce empowers consumers to easily compare e-retailers’ products, offers, and prices, leading to an increased market’s dynamism and volatility. Faced with increased competitionprice has become a key-element in buyer’s decision-making process. That is why it is now necessary to track market prices changes in an efficient way, so to respond quickly and stay competitive; this makes the use of price intelligence software quite crucial in volume retailing industry, especially when it comes to e-commerce.

 

5 • HOW DOES IT WORK?

Price Intelligence software track and collect market prices on the internet, on a frequent basis, and reflect them back to the user through the interface, providing him with a real-time vision of its positioning compared to the competition.

 

6 • FOR WHICH RESULTS?

This way, the Price Intelligence software user can get insights into his own positioning within the market, but also his competitors’, through the analysis of the reported data according to some specific criteria of his choice, and then conduct a market survey which allows quick and well-considered strategic decisions.

The user is then able to optimize his offer at different levels. In the example of a retailer:

  • To monitor the market aggressiveness and adapt its sales strategy accordingly, in order to secure profit margin with regards to competition.
  • To optimize its product mix for special events (Christmas, Valentine’s Day, Back To School, Black Friday, …) so to answer its market’s needs.

Brands, on their end, can monitor their products’ positioning within the market, by comparing them with similar items offered by the competitors’ and measure their retailers’ efficiency and performances, or even their products’. This process also allows them to make sure, regarding exclusive distribution agreements, that only authorized dealers are selling the products in question.

Ressources :

  • WorkIT’s price monitoring software
Learn about Minimum Advertised Price (MAP) in the US – Definition

Learn about Minimum Advertised Price (MAP) in the US – Definition

In today’s multichannel world, it’s hard to keep the market balance and enable retailers to play on a level playing field. Some apply the “make it up in volume” policy, which allows them to offer lower prices and still generate high gross margins. However, this is unfair towards small retailers. The concept of MAP price a.k.a manufacturer advertised price was implemented to keep the market game honest. At WorkIT Software, we help you track online prices with our price monitoring software.

DISCLAIMER: Minimum Advertised Price (MAP) is a US-only regulation. Therefore this article applies only to the US.

 

 

WHAT IS MAP PRICE – A DEFINITION?

Minimum advertised price is set by the manufacturer and marks the lowest price a retailer can use to promote the product. Whether it’s an online ad, a catalog or any other way of advertising, a retailer is not allowed to go below that price.Online retailers are not excluded from the policy; they are expected to honor MAP as well.

This doesn’t necessarily mean that a retailer must sell above a given MAP. The rule only concerns advertising of the product. Once a customer comes to the store, the retailer keeps the option of providing an extra discount to said customer.

There are good reasons to follow minimum advertised price (MAP) set by the manufacturer. For instance, if a retailer doesn’t honor it, the manufacturer may refuse to send him more products or his selling privileges may be revoked, damaging their business relationship together in the long run. On the other hand, a retailer who nurtures good relationship with the manufacturer might benefit from special favors, such as the possibility to send back to the manufacturer products that weren’t sold for instance.

 

 

MINIMUM ADVERTISED PRICE MONITORING

There are various professional MAP monitoring software available that can perform map pricing monitoring and provide insightful data for manufacturers and retailers alike. These tools help keep everything running smoothly by sending a notification as soon as a violation is made. (See “Alerts” by WorkIT Software)

Minimum advertised price monitoring software helps manufacturers assess prices for their products across retailers. The retailers, on the other hand, can monitor their competition. If a violation occurs, the software provides evidence by offering a screenshot of a product page. The manufacturers can then send a warning to disobedient retailers or even take actions against them.

 

 

BENEFITS OF MAP

MAP retail pricing is crucial for a lot of reasons, including:

  • It promotes fair competition across various distribution channels – same rules of the game apply to both small and large retailers
  • It prevents under-pricing and protects seller margins – no retailer can use the unfair “make it up in volume’ policy
  • It maintains value of the brand – if someone offers a product at a ridiculously low price, it lowers the value of that product in the eyes of customers

MAP price monitoring is essential to keep this pricing policy functioning at a maximum level. In a nut shell, having a valuable checking system that discovers violations as soon as they are made helps to maintain the pricing integrity of the market.

Learn more :
Competitive Price Intelligence

Competitive Pricing – Definition