The retail market is full of opportunity. High-tech innovations are allowing retailers to understand their customers better and respond to the market in record time. However, if your company hasn’t yet embraced the technological progress that retail is experiencing, you may find yourself being constantly out-priced by competitors, and your business will inevitably be left behind if you fail to adapt to the modern, fast-paced market. Competitive pricing allows your business to provide the best prices at all times and stay ahead of competition by adapting to the ebbs and flows of constant price changes.
What is competitive pricing, and why is it so useful?
Competitive pricing, also known as competitor-based pricing, is a pricing strategy that considers the prices, promotions and inventory data of your competitors so that you may set optimal prices for your products. Competitive pricing is a major component to dynamic pricing, and can be fine-tuned according to your business goals by setting prices equal to, lower, or higher than your competitors.
Why is competitive pricing so useful in the modern retail market, you may ask? Most buyers nowadays browse many stores in order to find the optimal price, a task which is easy to accomplish online.This why this approach is very popular in markets with a high level of competition, e.g. electronics, toys, etc. where retailers sell similar products. When used effectively, competitive pricing allows your company to increase its profits and outcompete rivals.
Let’s say your company is selling laptops, and has set low prices for a particular brand of laptop to increase sales. Using competitive analysis, you can raise your prices knowing that your main competitor has run out of stock of this laptop, boosting your revenue without the risk of negatively affecting sales. Without competitive data, this opportunity for increased revenue would have been lost.
Implementing a competitive pricing strategy
Creating and using a competitive pricing strategy is a challenge without the appropriate technology. Though it technically can be done using manual labor, the amount of data that needs to be collected and analyzed makes these traditional pricing methods time consuming and prone to error. Even the most dedicated pricing teams will make minor mistakes when they try to keep up with the ever-changing market, which can result in thousands of dollars in lost revenue.
There are several factors your business needs to monitor besides prices in order to have a solid competitive pricing strategy, such as:
- The price positioning of your rivals compared to your store. This helps you understand which rival may influence your sales the most, what items may be sold at higher price, and which prices are too high.
- Promos, discounts and other activities of the competitors. Many customers tend to look for deals and discounts before purchasing products. Constantly tracking all discounts and deals on the market will equip you with trustworthy competitor data and help your business provide more effective promotions.
- Stock availability. If some of your rivals are out of some items, this can heavily influence what the “best” prices for your products are.
The advantages of pricing software for competitive pricing analysis
That’s why retail businesses, regardless of size, need to use advanced pricing solutions to implement competitive pricing effectively. For large retailers such as Walmart or Amazon, complex in-house systems are created to monitor these aforementioned factors. High-tech software provided by external entities are available to retailers of all sizes, however, and they have several advantages when creating a competitive pricing strategy for your business:
- Quick collection and analysis of competitive data points from different sources
- Considers not only competitive prices and retailer’s costs, but also markdowns and promotions when setting repricing rules
- Rapid repricing according to market changes
- Analyzes your competitive pricing strategy quickly to make corrections and meet all KPI’s.
Additionally, external competitive pricing software providers can be a cost-effective solution for your company. Instead of your company investing additional time in resources to check the validity of the data you need to implement competitive pricing, a good external provider will assure data checks and a data accuracy guarantee according to the SLA created.
This in turn allows you to use all the information collected confidently. Your company can identify patterns in time series data (e.g. seasonality, etc.), watch category trends, calculate the price elasticity of every product or even build an econometric model based on the data collected and analyzed.
Competitive pricing for market success
Pricing is part science, but also partially an art. To master competitive pricing, you need to ensure that your company has the right software to research, utilize, and analyze competitive data. A successful competitive pricing strategy needs to consider several factors that may impact what the right prices are for your products at any given moment.
As you can see, to use competitive pricing to the fullest extent, you will likely need an efficient competitive pricing software. The data should be represented in a friendly to the user interface so you can make pricing decisions quickly and effectively. Additionally, a good pricing software should give you the ability to set up your own schedule for data delivery in order to outperform your competitors by choosing the best time for repricing.
Using a good competitive pricing software will greatly help your business increase margins and sales, get a larger market share and improve relations with suppliers by keeping you aware of your competition and changing your prices accordingly.