In business, pricing strategies are crucial to make a product valuable, and competitive pricing is one of the strategies that can be implemented, but it’s not the only one. Competitive pricing is when a business sets its prices to match or beat its competitors. It can be an effective way to attract price-sensitive customers and increase market share, but it also has its downsides. Businesses should be careful not to put all their eggs in one basket by relying solely on competitive pricing and should consider other pricing strategies and factors as well. In order to get a better idea about this concept one should look at some of the advantages and disadvantages of competitive pricing –
Advantages of Competitive Pricing
Attracts Price-Sensitive Consumers
The biggest advantage of competitive pricing is that it helps the company in attracting price-sensitive customers who are always on the lookout for getting the best deal in terms of price hence by following this strategy company can attract customers who are looking for the best deal, increasing sales and market share of the company. In simple words by using competitive pricing company can increase demand for the product, which can lead to higher sales and revenue.
Helps to Stay Competitive
Competitive pricing helps businesses to stay competitive by providing similar prices to the competitors, which can help to retain the current customers and attract new ones. In simple words by undercutting competitors’ prices, a business can increase its market share and potentially push competitors out of the market.
Good Entry Strategy
Competitive pricing can be a good strategy for new businesses to enter the market and attract customers away from established competitors because when the company is entering a new market than it has to take on competitors who have strong customer base due to the longevity of their business and if the company wants to make a mark then it has to adopt some strategy to attract consumers towards its products and when it comes to consumers lower price of products is a magnet which can attract consumer towards the product of the company.
Disadvantages of competitive pricing
Price Wars
The biggest disadvantage of competitive pricing is that when many businesses engage in competitive pricing, it can lead to a price war in which everyone lowers their prices, resulting in lower profits for everyone operating in the industry as thus in the long term it can prove to be a low margin business for everyone operating in the industry. In simple words, it’s a race to the bottom where every company is lowering the price of the product which can dent the margins of all the companies operating in the industry.
Not a Long Term Solution
Constantly lowering prices to match competitors can harm a business’s brand image and make it seem like a discount or low-quality option besides this strategy cannot work for a long period of time because businesses that engage in competitive pricing may focus on short-term gains such as increasing sales, rather than long-term strategies such as building a strong brand.
Difficult to Increase the Price
Once a business has established a certain price point, it can be difficult to raise prices without losing customers. Hence in simple words, it’s a one-way ride where either you keep lowering prices in order to attract and retain your consumer base or lose the competitive battle against your competitors.
There is an idiom that goes like this “that you can’t have your cake and eat it too” this fits the competitive pricing strategy well because while competitive pricing can offer many advantages such as attracting price-sensitive customers, increasing market share, and leading to cost savings, it also has its downsides. Therefore, it’s important for businesses to consider all the pros and cons of competitive pricing and weigh the risks before implementing it as their pricing strategy. They should also consider other pricing strategies and factors to make sure they are not just focusing on one aspect and missing out on other opportunities. Like in the idiom, one can’t have the cake and eat it too; similarly, businesses should not expect to achieve everything they want with just one pricing strategy.