Boosting Profits with Competitive Pricing Strategies

We all know the eCommerce market is crowded, and there are lots of other stores that can offer products and services similar to yours.

The main idea behind competitive pricing is attracting as many customers as possible with your price offerings.

According to the most recent survey on price comparison habits, 82% of online buyers compare prices before making a purchase online.

As you can see, if you price your products solely based on your cost and desired profit margins, you ignore your competitors and thus risk losing sales.

What is Competitive Pricing?

Competitive pricing is setting prices based on how your competitors price their products or services.

After you have determined the value proposition of your products and developed a strong brand image, it's time to identify your main competitors and their product categories to determine your business objectives, strengths, and weaknesses.

Depending on how you want to position yourself in the market, you can set your prices to be equal to, slightly lower than, or slightly higher than your competitors.

Competitive pricing becomes more important as new economic issues, such as tariffs, arise constantly around the world since shoppers are getting more price-sensitive while the economy is uncertain.

But besides learning to navigate external factors, what can online retailers do to practice competitive pricing?

How Competitive Pricing Works in Practice?

Let's imagine you own an eCommerce store that sells swimsuits. How do you decide the price of your products?

You look at your competitors' prices on a swimsuit for an opinion, and there is a chance that you will see that some of them will have a price tag of around $50, the other is $45, and the other one can be $60.

So, the one that sets the price for $45 wants to beat its competitors by being the cheapest. You can price your product slightly lower at $43 if you want to undercut all of your competitors.

The majority would price their products at around $50, but a wise decision would be to price your products closer to $45 if you want to attract price-sensitive customers.

You can also choose to price your products around $60 if you think the higher price difference is justified, along with an extra value-added feature, such as fast shipping or free accessories.

Since customers search between options, you need some trigger to lead your customers through the exploration and evaluation process, resulting in the sale of your products and services.

As you can see from the swimsuit example, eCommerce businesses need to have competitive pricing to avoid losing sales.

To Take Things Further: Dynamic Pricing

Having a differentiated product catalog or a luxury brand image is always best, as adding more value to your products gives you the freedom to price your products more independently of your competitors. 

However, if you are selling highly competitive products, using a competitive pricing strategy is key to boosting your profits.

What if there is a holistic solution that lets merchants set flexible and momentary prices in response to demand and competitors at the same time? The good news is that there is already a solution, and it is called dynamic pricing.

Dynamic pricing allows businesses to adjust prices instantly based on costs, desired profit margins, market demand, and competitors’ prices simultaneously.

Competitive pricing allows you to control your market position, and using a competitive intelligence tool is even better since it will gather all the necessary market information, helping you take the required steps and develop counter-strategies to your competitors' seasonal pricing adjustments.

Since manual tracking proves impractical, online businesses need a reliable data system and price tracking automation to track their competitors.

Price tracking and dynamic pricing tools, like Prisync, can automatically help merchants keep track of competitors and set predefined rules according to their desired market position.

For example, you can say you want to be 2% cheaper than your cheapest competitors if you want to be competitive, or you can say you want to be a certain amount more expensive than your highest competitor in the market if you target high-end customers.

Once you have set the dynamic rules and the automation has started, you must conduct continuous testing to decide if your existing price points are working in your favor or causing you to lose sales.

Without testing, there is no way to determine the demand for each price point. Test and fine-tune your price points persistently to improve your prices.

Other Helpful Competitive Pricing Strategies

Successful businesses combine several pricing strategies together to achieve their business and pricing objectives. 

Let's explore some other helpful competitive pricing strategies to implement and become more competitive in your market.

Loss-Leader Pricing

Loss leader pricing strategy allows merchants to attract customers by offering them some products at a lower price to lure them to their stores.

Once the customers are attracted to your store's offerings, they are more likely to purchase typically priced items or other products from the same brand. Razor and printer brands often use this strategy.

These brands rely on customers to make more purchases as they need to buy replacement cartridges and razor blades.

Loss leader pricing can work well if a brand's image is strong enough and offers add-on products to the main one, which people need to make supplementary purchases.

Tiered Pricing

Tiered pricing involves offering different price points depending on the features or quality of products or services.

For example, sneaker brands offer a more basic model of sneaker at a lower price. Then, there will be the advertised and more advanced, typically priced sneaker, and another one open to color customization of your choice for customers willing to pay for an exclusive sneaker. Another example would be charging different prices for your

Penetration Pricing

If you plan to market a new product, start by pricing your product cheaper than the market alternatives to see if it can create some level of demand, and work your way up by slightly increasing your product's prices.

Penetration pricing is a simple strategy for businesses, whether they are a new business that wants to enter the market or an established brand that plans to promote a new product into their existing catalogs.

Psychological Pricing

Besides competitively pricing products, merchants can also nudge online buyers to purchase products with psychological triggers and tactics. Price anchoring affects consumers' perception of the actual price after they are exposed to a higher initial price.

The decoy effect allows merchants to introduce a third option that makes customers think the main product they want to sell is a better option.

As the famous example goes, in a movie theater, small popcorn is sold for $4, and large popcorn is sold for $10. You could maybe go for the small one. But if there's medium-sized popcorn for $8.50, then the large-sized popcorn seems like the best deal.

Some other tactics would be removing the dollar sign or using smaller price fonts to mitigate the impact of the product's actual price, and using distinct colors and positions to positively influence purchasing behavior. Psychological pricing relies on cognitive biases that are common to all humans.

Conclusion

In conclusion, competitive pricing strategies are necessary for a successful eCommerce business in crowded markets where pricing can make a big difference.

Since the main goal is to attract as many customers as possible while maintaining profitability, merchants need to analyze competitor prices and understand customer behavior to set effective prices that result in purchases.

Companies should also implement dynamic pricing tools to take their strategy forward and have an advanced knowledge of the market and competition.

eCommerce businesses should constantly monitor and refine their pricing strategies by testing price points to align with customer demands and business objectives.

The key to boosting profits is to use competitive pricing strategies effectively by pairing them with dynamic pricing tools to drive traffic to your store and encourage customers to make purchases that increase sales.