Competition Based Pricing

Understanding How To Interpret Competitor Pricing

I thought I would write a little article on competition based pricing since it was pretty much my sole strategy for setting the pricing for my own products until recently.

Competition based pricing is popular within competitive ecommerce markets. It refers to the method of pricing your own products based on competitors products, as opposed to basing it on a combination of your own costs and/or demand. You may find that some businesses seem to worry about their competitors pricing more than their own, which is certainly the case in price sensitive markets.

This was the problem with my multimedia ecommerce store, I would get home from the office every night, and spend forever checking competitor pricing on my key products. I would then have to cross-reference this with my own products to not only compare pricing and see where I was at, but also to decide whether or not the margins would allow for me to adjust my pricing. As ridiculous as it sounds, I in fact sometimes reduced my costs to fall in line with competitor pricing even if it meant I was making as little as a 5% margin. My thoughts were that if it was a popular product and I knew a lot of people were searching for it, then they would never choose my site to buy from if I was overpriced, which in turn meant they would not return to my site, and also that they would not be spending any money elsewhere on my site. So I figured that I may as well just bite the bullet (sacrifice potential profit) and try my best to get them to my website, in the hope that they would become a repeat customer or even spend money on something else while in the process of buying the reduced priced item.

It took me a while to realise that competition based pricing was not the way to go. Whilst I did probably get a bit more traffic to my site than I would have otherwise got, my bottom line did not start improving as I had hoped, and it was driving me mad. In actuality, there are loads of other ways to try and improve it via my ecommerce store, but I just didn’t really consider them as I was getting far too carried away with competition based pricing. Whilst competitive intelligence is certainly important, I had gotten a bit carried away with it and was beginning to base my whole business around competitor pricing.

When you start noticing that competitors are selling certain products a lot cheaper than you and you know that your margins are so low on that particular product that you can’t really reduce the price, you should start thinking about how to better convert your current audience. Think about how you can reduce bounce rates, try something like Crazyegg.com if you want to know how people use your site, look into email marketing, PPC, SEO and so on. My problem was that I was just copying what my competitors did and it meant that not only was I always one step behind, but I was also not concentrating on building relationships with my current audience, as I was too obsessed with finding new customers.

So do take in what I have discussed and bear it in mind if you have your own ecommerce store, but don’t forget that competition based pricing should still be implemented to some extent. By that I mean more of an awareness, but the great thing about awareness is that you can take advantage of what your competitors don’t know; if you know what trends and patterns they take with setting their prices, then you can stay one step ahead of them and make adjustments before they do. This is what I realised as soon as I started trialling competitor price monitoring tools. The ability to track competitor pricing every single day meant that I could predict what competitors were going to do since they always seemed to follow the same patterns. That might sound complicated, but in all honesty it is a doddle. The tool I chose in the end displays all the data in an easy to interpret format and analysis is a piece of cake.

So the moral of the story is, keep an eye on competitor pricing, but don’t solely rely on competition based pricing!

If you have any questions or comments on this, leave a comment below or just email me directly at tobyg566@gmail.com.