12. Competitive pricing
Competitive pricing is when your prices either match or beat those of similar products that are sold by competitors. Often this simply means selling your products or services at a better price but you could choose to offer better payment terms instead.
As we’ve seen above, competitive pricing strategies include penetration pricing, promotional pricing, and captive pricing. The secret to knowing which of these could work best for your business comes from data. Gather as much information as possible about your market and what your competition is doing. If you combine this with the assistance of advanced pricing software solutions, you can analyze and update price data continuously.
What is the most effective pricing strategy?
The most important factors influencing your pricing strategy are rooted in your financial data. First and foremost, you need to know what it costs to produce your products or provide your services. You need to continuously monitor these costs so you can quickly react to changes and maintain long-term profitability.
External conditions are often just as important as your cost of production. Know your market, your competition and your customers. Emerging trends, supply chain threats and even shifting perceptions of your brand can all force you to rapidly change your pricing strategy.
Finally, consider your longer term revenue goals. If you are selling premium goods and want to drive up demand, think carefully about whether discounts could do more harm than good by damaging the perceived value of your product. If you are going for market penetration with a loss leader, how long can you sustain this before cash flow becomes too stretched?