Discover the Secret to Winning in Ecommerce: Competitive Pricing

Discover the Secret to Winning in Ecommerce: Competitive Pricing

Undoubtedly, pricing plays a crucial role in the decision-making process of consumers. Regardless of whether you operate an eCommerce website or a traditional physical store, determining the appropriate prices for your products or services can be a daunting task. This is particularly challenging for new business owners who need to set prices for their products in a highly competitive market. Your pricing strategy has far-reaching implications for your business, including cash flow, profit margins, expenses, and the position of your products in the market. Therefore, making wise pricing decisions is important for achieving business growth and remaining competitive in your industry. Fortunately, many businesses can rely on a proven pricing strategy, namely, competitive pricing.

Table of contents:

1. Competitive Pricing Definition

2. How to Build a Competitive Pricing Strategy

3. Competitive Pricing Methods

4. Competitive Pricing Advantages

5. Disadvantages of Competitive Pricing

6. Conclusion

Competitive Pricing Definition

Competitive pricing refers to the practice of setting your product prices based on the prices offered by your competitors. While this is the most basic definition, it can be a valuable tool for businesses and research. For instance, new businesses may lack knowledge of their target customers and their preferred prices. To address this, they can examine similar companies that cater to the same customer base and adjust their prices to match. This approach can be particularly advantageous for SaaS pricing.

How to Build a Competitive Pricing Strategy

There are several ways of forming a competitive pricing strategy, some of them described below:

·        Cost plus pricing, which is the most basic method that ensures your price covers all of your costs and provides a profit. However, this method does not consider competitors or customers, and further research may be necessary to ensure your price is attractive to customers.

·        Penetration pricing, which is a competitive pricing method used by new businesses entering an established market. To attract customers, the pricing is set lower than the competition. Once the brand is established, prices can be increased

·        Demand pricing, where prices are adjusted based on demand. For example, during peak seasons, prices may increase. While this is not a direct challenge to competitors, it is important to look at competitors to determine when and how much to adjust pricing.

Competitive Pricing Methods

There are a few ways to make your prices competitive, which include charging higher, lower, or the same rate as your competitors.

If you choose to charge higher, it is essential to provide your customers with something that justifies the increased cost. This may involve branding and packaging, or offering organic ingredients, ergonomic design, or better technical specifications. On the other hand, you can appeal to customers who are more cost-conscious by charging lower prices and emphasizing the value for money of your products or services.

However, going lower permanently may not be the best strategy, but offering introductory prices or special promotions can be a good way to attract customers.

Alternatively, maintaining the same rate as your competitors is known as price matching. This may be a wise choice if your product offers added value compared to others sold at the same price.

In order to correctly implement any of these methods, a Competitor Price Tracking Tool will help you.

Competitive Pricing Advantages

The application of competitor-based pricing can aid organizations in making informed strategic decisions regarding their products and services. There are various advantages to utilizing this approach.

Firstly, it enables companies to gain a better understanding of their standing in the market relative to their competitors. Moreover, it facilitates the assessment of the impact of price changes on the business.

Lastly, it serves as a means for companies to monitor their progress and make necessary adjustments to stay ahead of the competition. Competitive pricing offers numerous benefits, including the ability to attract new customers.

If potential customers see that a company’s prices are lower than those of its competitors, they are more likely to try out that business, leading to an increase in sales and market share. Additionally, competitive pricing can result in higher profits, even if the price reduction is only marginal, as the company can sell more products or services at lower prices.

Finally, competitive pricing fosters brand loyalty among customers, who are more inclined to remain with a company they perceive as offering value, leading to repeat business and heightened customer satisfaction.

Disadvantages of Competitive Pricing

Although competing on price can be advantageous for certain businesses, it has several drawbacks.

Firstly, this approach overlooks the distinct characteristics of the products. If a company’s product possesses unique features that its competitors do not, it may not be reasonable to compete solely on price. It also encourages companies to prioritize immediate gains over long-term sustainability.

Additionally, a competitive pricing strategy may result in a “race to the bottom,” where companies continuously strive to offer the lowest prices, resulting in reduced profits and margins.

Lastly, this method may attract customers who place little value on anything other than price, which can adversely affect customer retention.


Competitive pricing is a popular marketing strategy used by companies for various reasons. Firstly, it can draw new customers and increase sales. Moreover, it can promote brand loyalty among existing customers while deterring new competitors from entering the market. Finally, companies may adopt competitive pricing as a defensive mechanism. In the event of a competitor introducing a new product at a lower price, the company may match the price to safeguard its market share. 

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