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Competitive Pricing Strategy - An Introduction · Enhance.training

• 0:03
  SPEAKER_00: Hello, this is the second episode in our series on product pricing strategies.
• 0:09
  SPEAKER_00: Last time we looked at the cost plus pricing strategy.
• 0:12
  SPEAKER_00: But one of its downsides is that it doesn't take the competitive environment into account.
• 0:17
  SPEAKER_00: So we're going to address that with this second podcast as we're going to be looking at competitive pricing strategy.
• 0:23
  SPEAKER_00: We're going to take a deeper look at competitive pricing, a look to see whether this pricing method is the best for your products, or whether, well, copying isn't actually the best answer.
• 0:34
  SPEAKER_00: My name is Anna Taylor, and if you're new to this podcast, Enhance.training provides online business courses to help professionals, managers, and business owners improve their performance.
• 0:46
  SPEAKER_00: For over 15 years I've worked in finance alongside sales and marketing teams, and I've seen firsthand the importance of getting pricing right.
• 0:55
  SPEAKER_00: Now they say that pricing is either your most powerful weapon or your worst enemy, and I really want to help make sure it's the former for you.
• 1:03
  SPEAKER_00: If you like this podcast, please share it with friends and colleagues and visit us at enhanced.training for more great tips on transforming your performance.
• 1:13
  SPEAKER_00: So competitive pricing.
• 1:15
  SPEAKER_00: Well, whether it's those Black Friday deals, January sales, or even our weekly food shop, as consumers we're fully accustomed to comparing prices to get ourselves the best price and the best value.
• 1:28
  SPEAKER_00: So if consumers are comparing prices and making their buying decisions based on what they see from our competitors, then it makes sense for us to include this information when designing our pricing strategy too.
• 1:40
  SPEAKER_00: We cannot ignore the competition and market conditions when it comes to pricing.
• 1:46
  SPEAKER_00: Price is one of the first things that a consumer notices about a product, and it's one of the deciding factors when it comes to their decision to buy or not to buy.
• 1:55
  SPEAKER_00: It therefore makes sense to give pricing the time and effort it deserves.
• 1:59
  SPEAKER_00: Competitive pricing, or competition-based pricing, is just one of the options you have.
• 2:06
  SPEAKER_00: So what is competitive pricing?
• 2:08
  SPEAKER_00: Well, competitive pricing is where you base your pricing on your competitors' products and prices.
• 2:14
  SPEAKER_00: If you don't know the answer to your pricing question, then it is tempting to simply look around you to do a competitor pricing analysis, because you can see what everyone else is doing, and then you can do likewise.
• 2:33
  SPEAKER_00: Now there are different methods for competitive pricing, but I'm going to give you two main examples here.
• 2:40
  SPEAKER_00: Now the first one, well the first is simpler, because it's where you where you look at the prices set by other businesses in the same sector for comparable products.
• 2:49
  SPEAKER_00: You then implement a price just like theirs, perhaps the same or slightly above or below, but you simply look at what everyone else is doing and you do the same.
• 2:59
  SPEAKER_00: But the second method is slightly more detailed and it does require more time and analysis, because this is where you take all comparable products in the marketplace, whether direct or indirect competitors, and you order them.
• 3:11
  SPEAKER_00: You scale them from the most premium at one end to the most basic at the other.
• 3:16
  SPEAKER_00: You can rank them in both quality and price.
• 3:20
  SPEAKER_00: And at this point you decide where along that line you want your product to go.
• 3:25
  SPEAKER_00: You match your product to the price in the market where you see your product fitting best.
• 3:31
  SPEAKER_00: Now in both competitive pricing strategy scenarios, you have three options.
• 3:37
  SPEAKER_00: Firstly, you can price lower than the competition, secondly, you can price the same, or thirdly, price higher.
• 3:44
  SPEAKER_00: Now the choice is completely yours, but each one will have different implications.
• 3:49
  SPEAKER_00: So let's go through three examples of these choices now.
• 3:54
  SPEAKER_00: So the first option is to price lower.
• 3:56
  SPEAKER_00: So imagine a retailer has their own branded soup and they know the prices of the branded soups and they decide to price theirs lower.
• 4:05
  SPEAKER_00: Now this retailer is hoping to make more sales based on the assumption that consumers will choose their low-cost product over the pricier soup options, because pricing lower can help to grab people's attention and steal market share.
• 4:19
  SPEAKER_00: Now what about pricing the same?
• 4:22
  SPEAKER_00: Well, imagine a competitor is selling exactly the same product as you, same brand, same recipe, and the product is widely known.
• 4:30
  SPEAKER_00: So you decide to price at the same as they do.
• 4:34
  SPEAKER_00: As the price is the same, you're going to have to do something different to stand out, something different to set yourselves apart from your competition.
• 4:41
  SPEAKER_00: Now this is often done through creative marketing and branding techniques that help create a unique value proposition.
• 4:47
  SPEAKER_00: Perhaps you'll support a particular charity, maybe you make your product more visible, or perhaps you include a linked offer.
• 4:55
  SPEAKER_00: But in any case, marketing will be key.
• 4:59
  SPEAKER_00: And thirdly, yes, you can price higher.
• 5:02
  SPEAKER_00: So imagine you want to introduce a new TV with features never seen before.
• 5:07
  SPEAKER_00: So you look at your competitors and you decide that you're going to put yours at a higher price.
• 5:11
  SPEAKER_00: But how will you attract customers to a higher price point?
• 5:14
  SPEAKER_00: Well in this case you set yourself apart from your competition because you're offering a premium product with a sleek design and added features.
• 5:22
  SPEAKER_00: And because your competitors don't offer these add-ons, consumers will be more likely to pick up your premium TV over more basic models.
• 5:29
  SPEAKER_00: And here you can justify that higher price because you're giving your consumers more value.
• 5:37
  SPEAKER_00: Who uses competitive pricing?
• 5:47
  SPEAKER_00: Not a big surprise to any of us.
• 5:49
  SPEAKER_00: Now, therefore, many companies simply have to use competitive pricing to ensure their consumers do not move to another competitor just for the low prices.
• 5:59
  SPEAKER_00: So with the first type of competitive pricing method that I've just described, it's particularly relevant if your customers are very price sensitive and your competitors are reactive.
• 6:09
  SPEAKER_00: Because businesses that use platforms such as Amazon or similar will need to use competition-based pricing extensively.
• 6:17
  SPEAKER_00: This is because their consumers can compare prices so easily and continuously.
• 6:23
  SPEAKER_00: But almost all companies can use the second competition-based pricing method.
• 6:27
  SPEAKER_00: Even companies with very few direct competitors can benefit from benchmarking in the marketplace.
• 6:32
  SPEAKER_00: It really helps you to understand your consumer, what they like, and what they've been willing to pay.
• 6:38
  SPEAKER_00: This research can also shape your marketing message.
• 6:41
  SPEAKER_00: It can help you to show your value compared to your competitors.
• 6:46
  SPEAKER_00: So why is competitive pricing great?
• 6:49
  SPEAKER_00: Well, there are plenty of reasons that this pricing strategy is popular and does have its advantages.
• 6:55
  SPEAKER_00: Firstly, it's simple, especially if you have very few competitors.
• 6:59
  SPEAKER_00: So instead of spending hours inputting formula into spreadsheets, all you have to do is copy what's already working for someone else.
• 7:07
  SPEAKER_00: All you need is some basic research and insight into who your competitors are, their quality of products and how they price, and you can have your pricing answers in a few hours.
• 7:18
  SPEAKER_00: Secondly, competitive pricing can be low risk.
• 7:23
  SPEAKER_00: If these competitive prices have been working for your competition for quite some time, then in theory they should work for you too.
• 7:30
  SPEAKER_00: As long as they cover your costs, you shouldn't go bankrupt.
• 7:34
  SPEAKER_00: And thirdly, well it can help with the accuracy of your pricing.
• 7:38
  SPEAKER_00: Because in a saturated market like retail, the well-established price of a competitor's is likely to be a real true indicator of consumer demand.
• 7:48
  SPEAKER_00: So you can avoid any expensive and time-consuming testing programs that find the ideal price because you can simply look what the competitors are doing.
• 7:58
  SPEAKER_00: However, while it is always a good idea to be aware of your competition and the market conditions around you, it's not all good, and this method works best if not used on its own.
• 8:09
  SPEAKER_00: So there are watch outs and disadvantages of this pricing method too.
• 8:14
  SPEAKER_00: Now the first watch out is to make sure that you do not drop your price too low to copy a competitor if you can't afford it.
• 8:21
  SPEAKER_00: Do not drop your prices so low that you cannot cover your costs.
• 8:26
  SPEAKER_00: It's not viable in the long run and you shouldn't do it.
• 8:30
  SPEAKER_00: Secondly, copying competitors and always wanting to be the cheapest can lead to a downward spiral of prices and a loss of perceived consumer value.
• 8:39
  SPEAKER_00: Because once you've dropped your prices so low, consumers will be less likely to ever pay the higher prices again.
• 8:46
  SPEAKER_00: For example, did you know that over 80% of washing powder is sold on deal?
• 8:52
  SPEAKER_00: This means that less than 20% of people ever pay full price for it.
• 8:57
  SPEAKER_00: This is because we're used to paying less through those deep discounts and deals in the supermarkets.
• 9:03
  SPEAKER_00: And thirdly, you may miss opportunities using this method, because simply copying others will not help you to reflect the value that your product specifically gives, and it's unlikely to maximize price and profitability in your business.
• 9:18
  SPEAKER_00: And finally, well, copying can just be wrong, because be careful you're not copying someone with the wrong answer.
• 9:25
  SPEAKER_00: If they've gone wrong, if they have the incorrect information or insight, then so will you.
• 9:31
  SPEAKER_00: In summing up, some form of competitive pricing is essential in many of today's marketplaces.
• 9:37
  SPEAKER_00: Having an awareness of your competition's product quality and prices can help you get a better idea of the market and consumer demand.
• 9:46
  SPEAKER_00: But as with cost plus pricing, I would not recommend that you use this method in isolation on its own.
• 9:53
  SPEAKER_00: However, combining it with cost plus pricing and the method I'm going to talk about next time, you'll be aware of the market, you can stay ahead of the competition, and you'll be able to cover your costs.
• 10:05
  SPEAKER_00: So next time we'll be looking at my favourite pricing method, value pricing.
• 10:10
  SPEAKER_00: So tune in to see how you can maximise the value of your sale by giving consumers what they want.
• 10:17
  SPEAKER_00: If you like this podcast, please share it with friends and colleagues and visit us at enhanced.training to find more articles and podcasts and videos on many aspects of pricing, business management, and personal performance.
• 10:31
  SPEAKER_00: I hope you've enjoyed listening and I look forward to speaking to you again soon!