Running your own business is always a challenge. No matter, whether you have a digital startup, or go classical and have an offline business, the pricing issue is always with you. Looking for the perfect way to get enough profit to cover all the costs, people are likely to hear about competition based pricing strategy. However, not everyone is aware of this strategy, and not everyone knows, how it works.
In this article, we are going to see, what is this strategy, and why it is beneficial.
What Is Competition Based Pricing Strategy?
Many people were able to meet this strategy in their ordinary life. Everything is simple. Using this strategy, you select your price, depending on your competitor’s price. This way, you don’t have to base the prices of your goods on calculating how much money you have spent already.
This strategy allows creating beneficial conditions for your customers, creating additional advertising factor, that gives you an opportunity to bribe them with better prices.
How Does Competition Based Pricing Work?
There are 3 major ways, which allow creating beneficial pricing for both consumers and businessmen. In spite of the fact, that many people think that this strategy works only with lowering prices, there are strategies, which are focused on higher ones, so that, here are 3 strategies of pricing:
- Providing lower prices. With lower prices, you are able to provide customers with more beneficial conditions. Using this strategy as the main one would only create losses. It is obvious, that having a business, which gives no money would be a mistake. However, the lowering strategy works at the beginning. For this reason, new players in a market are able to attract more customers with cheap services. This way, many people would become regular customers, and making the prices higher in the future would create no issues. This is more like an advertising campaign, which leads to further income.
- Providing higher prices. Higher prices sometimes create a psychological effect. This way, people think, that if the service comes for a higher price, it is more qualitative for many people. However, this strategy requires the creation of a brand. More investment can lead you to higher income, and your profits would be significantly better. However, your main task is to show your audience, that your service is better for their needs, and that they pay a fair price.
- Providing equality. With equal prices, you are able to create beneficial conditions for everybody. However, this way, you also have to spend enough time on the creation of a proper image of your company. This way, you will show your customer, that he will not have to overpay for your services, but he will receive something new. It might be a minor difference in services, or some major advantages, which are not common for competitors on the market.
This way, everything would be under your control.
So What About Competitive Based Pricing?
Competitive-based pricing is a great opportunity to create really beneficial conditions for your customers, without having losses. Using it, many new players in a market would have an opportunity to create an image of themselves without effort, using only their calculations.
This strategy requires you to be cautious, and know the limits of the loss, you are able to afford.