Pricing is a science. Whether you are running a multinational conglomerate or a tiny local store, there are few things more impactful than pricing your products right. Too high and sales will suffer, too low and you might not make enough to cover your expenses.
It’s a delicate balance with a thousand different factors. But where businesses really struggle, however, is adjusting prices in response to competition. How do you get the upper hand in a highly competitive market?
There is no universally effective pricing strategy, and the most widely used ones are only good in specific circumstances. Whichever you choose, industry professional PriceManager notes that it’s important to have a detailed plan and the commitment to see it through, since customers are extremely sensitive to major price changes.
1. Discount Pricing – The most straightforward strategy, this basically means being the cheapest product in your category. This is most effective for industries with generic products that have low perceived brand value. You can still differentiate yourself in other ways, of course, but it may no longer be cost-effective.
2. Parity Pricing – You constantly adjust your price according to the movements of a certain competitor. For instance, pure parity means you will match their price exactly. Meanwhile for dynamic parity, you maintain the gap between your prices; this particular strategy is excellent for products that rely on positioning, such as “#2” brands.
3. Premium Pricing – Lastly, there’s also the option to ignore your competitor’s aggressive pricing entirely. You comfortably price your merchandise above theirs, relying on brand value, superior customer service, and other essential factors to gain customers. In other words, you must be able to offer higher perceived benefits than the competition to succeed.
It’s not always wise to base your pricing off the market, however. A cost based or customer based approach can be much more effective in some cases. You want to consider every option, then decide which will produce the best results in both the short and long term.