Competition Based Pricing

Competition Based Pricing
Competition is a way of life. Your pricing strategy is another marketing technique you can use to improve your overall competitiveness. Get a feel for the pricing strategy your competitors are using. That way you can determine if your prices are in line with competitors in your market area and if they are in line with industry averages.

There are 3 types of pricing :

a) Destroyer Pricing

You should be carefully if want to use this strategy. Company use this strategy as an attempt to eliminate competition by lowering prices to an extent where competitors cannot compete and consequently, they go out of business. This is what you find with all competition based pricing strategies.

To do this company should make a research to know how competitive they can be with their prices compare to their competitors. If competitors can follow your price cuts even more they do it lower than yourself,you may go out of business.

b) Price Matching

Many companies feel that lowering prices to be more competitive can make a disaster for them and so instead, they settle for a price that is close to their competitors (just follow the leader if your company is not the leader in the field or you can set your own price if your company is dominant in the field)

Any price movements made by competitors is then followed by yourself: but how long that you can compensate for any reductions if they keep lowering their price.

You should make your business more dominant within its market by offering good service or product that is unique or popular (through branding). As a result, you may have the power to set the price in which your competitors will attempt to follow.

c) Price Bidding

Price bidding is a strategy most common with manufacturing, building and construction services. For example, in the government project all the consulted businesses will send a representative to bid for the work as if it was an auction.
If this was considered a big job (likely to generate high revenue), then some businesses would consider cutting their prices as it may account for a large proportion of their annual revenue.