Your competition in business will serve as your barometer for how to base and adjust your pricing.

Competitor pricing can change on a dime, and having members of your team manually track this data can be time-consuming.

Competitive pricing analysis is a key aspect of staying relevant for market share. Let’s help you go over product pricing strategies in a competitive market.

What is competitive pricing?

This marketing strategy, also known as competitor-pricing, refers to businesses altering their price points as their competition does.

This method can be a great tactic to stay nimble and attract more customers.

Competition-based pricing goes beyond simply checking out what competitors are doing and reworking your prices.

It’s a strategic plan that takes a closer look at products or services that are similar in nature and in value prior to adjusting.

For example, say you have a new coffee shop on the block in competition with a larger, well-established chain like Starbucks.

For the purpose of our example, let’s pretend the average Starbucks coffee drink costs around $10.

You feel you need to stay in competition or your business will go under, so you price your coffee around $10-11, maybe with the added flare that you’re a local coffee shop with a few unique facets Starbucks lacks.

PRO TIP: Don’t fall into these common pricing pitfalls.

But, you’re still the new kid on the block.

People are less likely to take a risk starting out, when they know they can get their favorite drink for the price they’ve been paying at Starbucks.

A more strategic way to approach competitive pricing in this fictitious scenario would be to price your coffee around $8-$9 to start.

Your price is close enough that you’re still conveying similar value and quality of your coffee compared to Starbucks.

However, you’re also giving you competition and thus, its customer base, the advantage of being slightly cheaper. This is an example of competitor pricing.

What is an example of competitor pricing?

An easy-to-follow example of competitor pricing would be Uber and Lyft.

Both rideshare companies are popular options for those looking for a taxi alternative to getting commute rides. 

As part of their competitor pricing strategy, both companies frequently offer discounts to allure users to their app.

This can be discounts for booking in advance, discounts for upgrades, or even promotions to buy a certain amount of rides.

In 2024, the following stats have been reported on the two companies:

• Uber’s monthly average sales¹ per customer was $107 in March, Lyft’s was lower at $95
• Uber has more revenue than Lyft²
• Lyft drivers earn more than Uber drivers, coming in around $25.73 an hour³
• As a competitive edge, Uber offers a monthly subscription plan that includes Uber Eats food delivery for a bulk discount

Competitor pricing basics

Let’s say you take a look at the market and want to set your price a bit above the average.

To be successful with this method, you need to clearly establish what advantages your product or service is offering for the added value.

Things like, flexible payments, free add-ons, and more are good examples.

On the flip side, if you chose to set your price below the market standard, this may seem effective at first thought but could ultimately result in a loss if not approached correctly.

Remember, price points dictate value. If you go too far below your competitors, customers may see your product as being less valuable and result in you taking a loss.

Here’s what you need to take stock of before you pick a strategy:

1. What are the costs of your labor, shipping, overhead, and production costs?
2. What is the competition charging for similar products/services? Do they offer values you do not, or vice versa?
3. Keep a pulse on the competition and market trends in additional to seasonality price adjustments.

How does competitive pricing affect consumers?

Competitive pricing can be a valuable strategy on the consumer side. Think of when you’re looking between two comparable products or services.

Let’s go with the aforementioned example of Uber and Lyft.

Chances are, you’ll open both apps and compare price points and how long it’ll take to: 1) get picked up, and 2) get to your destination, before deciding which to select.

Ultimately, if the estimated duration is pretty similar, it’ll come down to price, and which gets you the best value for your money.

Why some pricing structures are considered unethical or overly aggressive in a competitive market

Price fixing is an unethical and often illegal practice that happens when businesses try to force their competitive edge in the market with unfair and predatory pricing.

For example, let’s look at two giant consumers: Target and Walmart.

They offer similar products across the board with everything from in-store groceries, in-story pharmacy, home decor, daily essentials, pet supplies, children’s toys, electronics, baby supplies, clothing, and more. 

So, how did they go about standing out from one another in the market?

Back in 2007, Walmart attempted to beat out the competition by offering generic drugs at a price so low they would take a loss (this was isolated to stores in the state of Minnesota at the time).⁴

Local authorities caught on and saw the violations, forcing Walmart to raise their prices.

This was not the first time Walmart used predatory pricing, and got caught.

Competitive pricing strategies

Wait! Before we go further, let’s go over what to avoid.

Some businesses feel an umbrella, one-size-fits-all approach can be quick, easy, and allow them to fluctuate and move on.

This can be a dangerous pitfall.

Blindly adjusting your market price without taking into consideration the competitor’s price can be a major financial loss. 

Your competitor’s products and market conditions need to be factored into decision-making before blindly choosing your best price.

Whether you’re adjusting for the short-term, or long-term, having a competitive advantage isn’t tied to having a low price. 

Price optimization comes from effectively setting prices for your target audience, not about an undercut of your competition or getting into a price war.

Your target market needs to see the value proposition and differentiation between you and the competition.

This type of value-based pricing is important to keep in mind when looking at the below competitor pricing analysis options.

Loss leaders

This refers to a product or service being reduced to a larger discount, and can often correlate with a revenue decrease if products are sold below the break even point.

Sometimes this is necessary to move inventory.

PRO TIP:

This pricing strategy is illegal in about half of the U.S., and certain European countries such as France and Belgium.

Price skimming

This strategy is the flip of a lower price with the loss leaders method, aiming at maximizing profit margins with the launch of a new product or service.

For this to work, the value needs to be strong.

Either the product is one of a kind, or a significant upgrade to other products (including the company’s own) already on the market.

By setting the price higher, it shows clear value.

Premium pricing

Also referred to as luxury or prestige pricing, this is when a business sets a higher price point than the market average for similar products and services in order to convey value, particularly to attract new customers.

Penetration pricing

Penetration pricing is the method of setting a low initial offering price to gain traction and market value, with the long-term goal in mind of later raising the price as sales volume increases.

Price matching

Want to set the exact same price as your competitor and let the customer decide?

This method is risky, and local laws and policies need to be taken into account.

It could work in your favor if it’s compliant and a customer is driven to your service.

It could also backfire, if it encourages a customer to check out the competition.

Responding to competitor price changes with CPQ

CPQ (Configure, Price, Quote) is a valuable software that businesses use to monitor real-time price fluctuations and streamline their adjustments accordingly.

This is super helpful when it comes to deciding your competitor pricing strategy.

CPQ can help you to:

• Streamline price consistency and accuracy internally, across teams
• Minimize the time spent in a sales cycle
• Adjust pricing rules quickly, and easily

How to stay ahead with CPQ

Having CPQ in your back pocket gives you a competitive advantage.

By integrating the software with your other systems, valuable customer data and insights can be accessible in one easy place across teams to monitor competitor pricing.

This helps to streamline communication and transparency, cutting down on the possibility of human error if teams aren’t aligned with pricing changes as they happen (which is often in real-time).

CPQ acts as a one-stop spot for your optimized sales cycle, with the option to generate price changes, customize quotes, accept payment, and track KPIs.

“Upgrading our subscription to take advantage of PandaDoc CPQ for HubSpot has been well worth it. I had tried other CPQ options and they were all subpar. I’m super happy with our choice and can’t stress enough how much we needed this solution”

Emerson McCuinDirector of Revenue Operations at HAAS Alert

Our client HAAS Alert saved over 120 hours a month of admin work, increasing their document creation efficiency by 66.67% by using PandaDoc CPQ for HubSpot to better their sales cycle.

These features in addition to access to competitor pricing data can give you a serious competitive edge.

Maintaining competitive pricing without sacrificing profit margins

It’s a lot to take in, and can be overwhelming to know what to do next with competitor pricing tracking.

You want to stay competitive and afloat, but you don’t want to decrease your profit margins in the process.

CPQ allows you to build in dynamic pricing models based on both customer and competitor data, helping you with stay price-sensitive through analysis.

If you’re in an area of razor-thin profit margins and need to stay aggressive to be in the market, CPQ could be highly valuable to your pricing method decisions.

You can also integrate CPQ to access advances analytics. This helps you get a clear understanding of your price performance relative to your competition.

You can analyze loss rates, understand customer preferences, and see how effective your discount strategies are.

By incorporating CPQ into your competitive pricing strategy, you can confidently keep an eye on things without spending too much time on manual research and analysis.

Navigate competitive pricing, protect your profit margins, and keep your eye on the prize: long-term revenue growth.

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