The definition of market-based pricing strategy
A competitive pricing strategy, or market-driven pricing strategy, is an approach in which e-commerce retailers set their online prices based on the real-time competition.
However, to be successful and reap the benefits of this strategy, retailers must have a robust data collection system in place to obtain fresh data from the competition and act with immediate and effective responses to competitors. In short, a market-based pricing strategy requires detailed market analysis.
What use is a market-based pricing strategy for an e-commerce site?
An e-commerce retailer can set its own prices according to its market positioning. It may want to be the most competitive in the market, aim for the average or always be above the competition.
For example, if the company caters to high-end customers and offers luxury products, it is better to offer higher prices than the competitors. This decision will result in high margins, high loyalty but also low conversions.
On the contrary, if the online retailer aims to increase its sales, it can sell its products at lower prices and be the most competitive in the market.
Automation is the key to a successful market-based pricing strategy
For competitive pricing analysis to be effective today, retailers must automate it. This is because comparing all products with their competitors and tracking them manually is a huge time-waster. So, to make it more productive and beneficial, using e-commerce technologies such as a competitive price tracking software would be a very cost-effective decision.
With these intelligent services, you can better focus on analysis, make strategic decisions and know your true market position instead of spending your time collecting market data.
What are the benefits of a market-driven pricing strategy?
Respond faster to the competition
One of the biggest benefits of using a competitive pricing strategy is that you give your business control over the competition.
If you use price tracking software, you’ll have access to information that other businesses would have a hard time collecting manually. You can use this intelligence to respond to your competitors with every move.
This way, you can better position your business against your competitors’ various strategic decisions and you won’t lose your customers to price wars.
Delight price-sensitive customers
Did you know that the price of a product is the first thing 60% of customers think about? It’s usually one of the top decision factors for businesses or consumers when making a decision.
Moreover, according to the facts about e-commerce pricing, an average online shopper will visit at least 3 websites before finalizing their purchase.
By facing these facts, we can clearly say that online shoppers value price and how they compare to other sellers.
Also, as more and more Internet users compare products and prices at length, they will not hesitate to prefer one of your competitors if they are not satisfied with your prices. So, from a buyer’s perspective, using a competitive pricing strategy will help you keep your customers happy and leave room for your business to grow.
Laying the foundation for dynamic pricing
With this strategy, you’ll take the first steps toward dynamic pricing, a complex approach that sits atop competitive pricing strategies.
In dynamic pricing, frequently updated competitor pricing information can be used as a trigger to update your own prices based on certain pricing rules for your product line.
With dynamic pricing capabilities, you will be able to be much more competitive in the industry and allow you to maximize profits with each price change.
Combine with other strategies
This strategy can be linked with other pricing strategies to make it even more effective.
For example, to maintain profitability through a competitive pricing strategy, online retailers should always keep their costs in mind and use a blended approach.
Avoid the revenue loss of a race to the bottom
Some companies don’t use the market-based pricing strategy wisely. They reduce their prices to the lowest possible level without really taking into account the prices of their competitors.
They make certain mistakes. For example, their prices may be too low compared to other retailers in the market. They lose money because raising their price by 5% is not really likely to affect their competitive position.
So this is an opportunity to raise their prices, improve their profit margins and still be the most competitive in the market.
The best way to realize this opportunity is to use automated competitor price tracking software. By collecting price intelligence data from the market, you will have a clearer picture of your price positioning and detecting price differences will no longer be a problem.
What are the drawbacks of a market-based pricing strategy?
May distract you from other business tasks
If a retailer focuses solely on competing with other players in the market, there is a risk of not covering production and overhead costs. As a result, there is a risk of losing margins. Don’t forget about other tasks that may affect your brand image or costs.
It doesn’t work in all markets
This strategy is not necessarily valid if you sell high-end products. In fact, in the luxury market, online shoppers tend to feel more special and don’t care about price. Thus, trying to be competitive in such industries can hurt customer loyalty and brand value. It is best to combine consumer-driven and market-driven pricing strategies in these scenarios.
By establishing a competitive pricing intelligence tool, retailers assume that their competitors have priced their products correctly. However, competitors’ pricing strategy may not align with the company’s overall strategy and may result in disharmony.
This can be difficult for small retailers
For micro and small businesses, creating resources for these technologies, money, new employees to support a competitive pricing strategy can be a problem. These types of businesses may need to focus on growth or operational optimization rather than trying to compete first.
