You need to first understand your pricing plan to do competitive pricing analysis. That’s what we will help you master after reading this article.
Working out how to price a product is tricky for any business. There are many challenges, and many things can determine the right price.
It is important to remember that our mission here is to offer a product or service that can get a competitive edge over the competition, but you still want to achieve a profit margin.
This can be daunting; To ensure profits, you might place your price too high, scaring away potential customers. So then why not just choose a lower price? Well, you might seriously damage your profits and turnover. Or, in the best case scenario, you will attract the wrong customer.
Indeed, there is a lot to consider.
But one common pricing policy is to do competitive pricing analysis. It’s an effective way to opt for your price used by businesses across all sectors.
Pricing your offerings based on the competition is not only an excellent starting point, but it can also assist you in distinguishing your brand while keeping-or even leveraging- your market share.
That is particularly essential for retail businesses. They need another way to differentiate their products to attract customers because they’re all selling the same products.
However, Competitive Pricing Analysis is not just about going around the market, taking notes and setting the price. Competitive pricing analysis requires a lot of time and research to do effectively.
In this guide, we will take a look at competitive pricing analysis and explore how you can beat out the competition and use this strategy as a competitive advantage.
What is Competitive Pricing Analysis?
Competitive pricing analysis assesses the consumers’ reaction to new prices. Companies identify this reaction by employing research based on polls and historical data. So, it’s an evaluation of customers’ responses to a price without determining the costs and potential profits for any business.
An initial price analysis is often launched, and then the pricing analysts use any valuable findings along with the other factors to design an optimal offering.
So, competitive analysis or strategy is a pricing policy that mainly depends on your competitors’ prices as a matrix to set specific prices.
This type of strategy is referred to as competition-based or competitor-based pricing. In many cases, the business comes to a competitive pricing strategy after finding that a cost-plus approach is no longer relevant.
Why Should You Consider Building Competitive Pricing Analysis?
Conducting a thorough analysis can bring enormous advantages for your business growth, gaining competitiveness and spotting opportunities to improve your sales and push your company towards progress. Let’s explain this in more detail.
Keep Your Company Profitable
An extensive and exciting part of utilising Competitive Pricing Analysis is ensuring that your company remains caught up and gets all of their potential profit. This tool can also help you to get back on track when you’re losing profits.
High competition means a tiny profit margin for your product, even if it’s top-selling. And it’s understood because many companies are major players in the game.
But pricing difficulties can be a part of the past when launching accurate and complete competition analysis. You will be able to find the position of your products through a fiercely competitive marketplace and then correctly price them to be competitive in the market, but still profitable.
Possibility of Growth
You can swing a good market share when undertaking your price and where it might put you against competitors. Not just increasing more market share, you will be able to get one over the competition.
Simply because competitive pricing analysis across your entire offerings— product or service range— can make you focus on areas of opportunities and identify where you could potentially lower prices of some of your packages to grow your market share.
Again, it’s imperative to retailers. And in this case, they refer to these companies as “loss leaders”, which means increasing overall market share by declining the costs of low-value products to increase overall sales.
Attract New Customers
According to an INC report, more than 80% of buyers always compare offers from several stores in search of a better deal. So, retailers should collect and analyse market data, offer optimal prices, and map their position against competitors to win buyers’ attention. They must present themselves as the best choice and find a way to catch the potential customers’ eye.
If people believe your product to be the best bargain, they will try it. Competitive pricing analysis will help you attract these buyers by optimising prices using competitor products and other pricing data. Indeed, a successful pricing strategy can significantly increase sales and boost reviews due to better cooperation with suppliers and more satisfied customers.
Through daily follow-up and monitoring of your competitors, you can get a real vision of the market, allowing you to make informed decisions based on your pricing policy which is now more justified.
As displayed in the image below, pricing is the main reason a shopper will either choose to buy your product or shop somewhere else.
Keep You Updated with Your Position
With millions of things happening in the market, from inflation, shortages or abundance, your prices should reflect the current environment. That is to say, prices should not be static.
A simple way to understand where to set your prices is to examine your competitors over time and use the same pricing plan.
Staying in tune with competitors is healthy for your business because it helps you efficiently weigh your price and justify your product prices. That ends arbitrary price adjustments and enables you to stay up to date with competitors doing the same thing.
Keeping peace with competitors refers to setting your price position compared to them. You will maintain or change your position according to market and competition changes.
Thus, if your competitors change their prices, you can use this as an opportunity to adopt a strategic price advantage over them in the short or long term. That is to say you have an opportunity to adjust your price to your advantage, not necessarily match it with your competitors.
But the only way to do so is to do competitive pricing analysis regularly.
Remember, information is your power, giving you credit, credibility and the ability to adjust.
Spotting Weakness Points in Your Competitor Pricing Plan
One of the most important aspects of competitive pricing analysis is that it will help you find where your competitors are falling short. That allows you to determine weak spots in your competition.
That will help you identify opportunities in any marketplace and test out new marketing strategies to reach those weak spots or take advantage of new sweet spots.
That being said, if you understand your competitors’ pricing well and where it positions in the market as a whole, you could use their marketing strategy drawbacks to examine your own prices.
For example, if you and your competitors sell similar products and offer the same services, but yours are packed with business-critical features, you might adopt a new strategy to change your product messaging and pricing accordingly.
That will be much justified because it reflects your product’s quality.
You will also need to build a side-by-side comparison of the pricing pace of your website, for instance. You need to highlight the advantage of your products and services quickly to justify a price increase.
Finally, if you can use economies of scale to offer products and services for less, then you can potentially undercut competitors and generate sales at a higher volume.
Update Your Prices Daily
To maximise profits, you need to adjust prices in the market. The rule of thumb here is to use the right data, updated by two hours before adopting a price adjustment.
Keeping your sources up to date is critical to developing any beneficial and accurate price plan.
Marketing experts suggest that pricing and product data should ideally be delivered to the corporate’s internal system every 20-30 minutes! So yes, it’s a key to making comparison analysis effective.
How to Do Competitive Pricing Analysis?
As mentioned, carrying out a competitive pricing analysis will help you minimise the chances of losing customers to competitors. You must ensure your competitive pricing analysis continues to maintain an advantage in the market. All of that should be in line with your revenue and profit goals.
For example, luxury brands keep their prices high to attract wealthier customers, e.g. Mercedes. Typically, these brands have a long-standing reputation. However, if they don’t recognise a competitor’s price increase (and find out why), they will most likely find themselves being seen as a cheaper alternative; not affordable to the masses but not luxurious enough for differentiated customers.
It may seem like a lot to digest… but no worries, we will break down how to do competitive pricing analysis into practical steps:
- Find Out Who Your Competitors are
To do this stage perfectly, consider yourself a consumer who wants to use a product or service similar to what you’re offering. So, take on this role and start searching for competitors— who are in direct competition with you— to understand how they place prices.
Look at your customer profile and then ask questions about where you can find this product and the best bargain.
But you also need to check your indirect competitors and see how much weight you need to put into their pricing when creating your strategies. Indirect competitors include online marketplaces, local traders, specialist stores, and any other aspect that could eat into your profits.
Indirect competitors may not sell the exact same product as you. They may sell a similar product that acts as an alternative to your offering.
Consider the time you’ve been an active company in the marketplace. That will tell you a lot about how your customers see you amongst competitors. Have you been operating for many years and gained a sense of trust with customers? Are you a new business entering a competitive market who has a better product to offer?
What is the difference between direct and indirect competitors?
Direct competitors offer products and services similar to yours in your market. Indirect competitors might not operate in your market, but their offerings can compete with you. They may also be using the same raw materials or manufacturers that you are using.
So, take your time to study the market and find out which companies produce a similar range of products and who offers them at a relatively similar price bracket to you.
- Gather qualitative and quantitative information
In this phase, you need to collect data about your competitors, such as their overall pricing plans. This data must include cost, value, demand, and competitor sales.
And to stay organised, you can start finding answers to these questions:
- How well do they perform with their pricing strategy?
- How is their marketing in line with their pricing plan?
- How often do they adjust prices?
- Are their prices justified?
- Are they aggressive in defending their situation?
- What are customers’ reactions after changing prices?
- How are the first movers viewed in terms of price changes?
- Do they use any pricing tools like AI software?
- Do they apply price matching?
That leads us to
- Define Data Parameters
After collecting data, another important mission is waiting for you; determining important parameters of competitive data. Remember, your ultimate goal from this is to analyse the pricing process, so here are some parameters to illustrate the best data for your endeavours.
- Price Index: You will understand your position in the market for a given product over a certain period of time. The price index also displays the class of products to visualise how market changes affect sales and delivers pricing data listed by competitors.
- Product availability: This parameter is dedicated to monitoring competitors’ stocks to know the product inventory, and then retailers can adjust their prices accordingly. In this case, your company needs to have accurate data based on the supply of an item or class on the market at a specific time.
- Competitors’ promo activity: Some studies pointed out that at least a third of customers are searching for discounts before buying an item. That means you need to continuously monitor sales and deals of others in your industry to optimise promotional offers.
Competitive pricing analysis requires a thorough study of internal data, such as records of orders and suppliers’ shipments. You should pay as much attention to your data as your competitors. It’s only possible to determine optimal prices and success with your competition-driven pricing strategy with a foundational knowledge of the market and your position.
- Focus on Quality Data Only
Complete and accurate data helps you build a successful competitive pricing analysis. So what criteria should you focus on for high-quality data when creating your competitive pricing analysis?
There are a lot of things to consider, but we have broken them down into the following key points:
- In-depth details: Business owners need to take everything into account in terms of product or service information, such as colour, features, technician characteristics and other product attributes. The depth of comparisons is vital for high-quality data. This data is not offered on product cards. That’s why you need to conduct large-scale competitive research.
- Data delivery time: Pricing and product data should be delivered to the internal system every 30 minutes to generate a more effective comparison analysis.
- Possibility of errors: When collecting data, you should take into your consideration the percentage of errors. Most data matching is gathered using automation and is prone to a degree of mistakes. That’s why combining automated and manual comparisons are highly recommended to ensure better results and enhanced automatic solutions.
- The ratio of delivered and planned data: Data can be incomplete because the algorithm may need more information, which is unavailable on your competitors’ websites. That means that the amount of data before collection might exceed the amount of usable data to be delivered.
- Continuously updated data: Retailers or any sales team should use the data gathered 2 hours before setting prices.
How Can Profiletree Help You?
To do competitive pricing analysis from scratch, you need to do so much work. It’s not an easy feat. So many factors revolve around data, such as quality and other parameters. You must carefully consider what you should include and what you have to skip.
You must decide whether you will use automation within the pricing process, and if so, you need to consider to what extent.
Lastly, you also must thoroughly study your competitors to obtain a better understanding of their position in the market to excel in it truly.
That being said, correctly pricing your products can vary between success and failure. As pricing depends heavily on research, you still need to invest in the most appropriate tools.
That’s how we can help you. Our data-driven pricing analysis software will do this job for you to put you ahead of the market regarding your competitive pricing strategy.
And even if you don’t have one, we will do profound research to help you put together your pricing strategy and test it out.
Our experts will help you run a range of pricing analyses to measure many aspects, like conjoint analysis, which will help you understand the value customers place on specific products or services’ features, including the price.
After conducting your competitive pricing analysis, you will identify the optimal bundle of benefits to help you beat out your competitors.
You will receive a highly-oriented analysis to measure price sensitivity against product features under one umbrella, enabling you to compare your pricing strategy from multiple studies. Then, you can confidently launch your product offering optimal prices that consumers are willing to pay for.
Book your session today so we can listen to your concerns and help you find the best way to do your competitive pricing analysis.