Competitive Pricing Analysis: A Complete Guide

Figuring out how to price your product can feel like a balancing act. You want to find that sweet spot where you attract customers and make a profit. This is true, especially for eCommerce businesses.

Price too high, and you might scare away potential buyers. Go too low, and you risk hurting your bottom line.

This is where competitive pricing analysis comes into play.

The analysis provides a solid starting point and helps your brand stand out, protecting your market share. However, competitive pricing isn’t just about looking at what others are charging and matching it. It requires detailed analysis and ongoing research.

In this blog, we will be discussing

• What is competitive pricing analysis?
• Benefits of competitive pricing analysis
• Best tools for competitive pricing analysis
• How to conduct competitive pricing analysis?
• How to implement a competitive pricing strategy?
• Challenges of competitive pricing analysis

Let’s get started.

What Is Competitive Pricing Analysis?

In simple words, it’s a process of evaluating and understanding the prices of similar products in the market.

Competitive pricing analysis includes gathering and analyzing data on competitor’s pricing strategies. The insights from these will be further used to make informed decisions to determine one’s own product pricing.

Here’s an example to give you an idea.

Suppose a company X is launching a new smartphone but is unclear on how to set clear pricing. So, here, they can start by conducting a competitive pricing analysis.

Result – The price range (of similar smartphones) is between $500 – $700.

Upon further analysis, they found that the competitors are also offering discounts or free accessories.

Based on all these, X decided to price their new smartphone at $650 and offer a free phone case, charger, and a 2-year warranty. They then test this price and offer in a few markets, monitoring customer reactions and sales.

Depending on the results and customer feedback, they can adjust the price or offers to meet customer expectations. This is what competitive pricing analysis essentially is. It helps set up an attractive and competitive price that increases sales and profits.

NOTE:

Those who are interested in knowing how you can collect customer feedback about product pricing, try survey tools like SurveySparrow.

The following is one of the many free, pre-built templates offered by the tool.

5 Benefits of Using Competitive Pricing Analysis

There are many benefits of implementing proper competitor pricing analysis. The following explains the 5 crucial ones everyone must know. Let’s have a look at them.

Benefit 1 – Exploit Competitor Pricing Strategies

Pricing is one key aspect every customer looks into before purchasing any product. So, if you could offer better pricing options than your competitors, you could increase sales.

Through competitive pricing analysis, you can understand what the competitor’s pricing strategies are. This includes both their strengths and weaknesses. Lean on their weaknesses and exploit them to make your products more attractive.

Benefit 2 – Minimize Profit Losses

Confused about what minimizing profit losses means? Well, consider this scenario.

You have determined the pricing of your new product is $250. According to your initial analysis (not competitive), it seemed fair, cheap, and could bring reasonable profit. But if you have done proper competitive pricing analysis, you would have found that all other similar products cost about $700.

There is a clear gap of $450 between the market pricing and yours. This means that you could have priced the product at $600 or $650 and earned a profit of $350 or $400 more.

Benefit 3 – Expand Your Market Presence

No business wants to stay in a confined market. It’s all about attracting new customers and prospects. By following a competitive pricing analysis, you can do just that.

Compare, analyze, and find areas where you can lower pricing to outpace your competitors. Following a loss leader strategy is one example you can try here. Go through your inventory and see what low-value items you can reduce prices on. Doing so can help you boost overall sales and expand your market share.

Benefit 4 – Continuous Monitoring of Market Position

There is only one constant, and that is change. With time the market evolves, and so should your prices.

Therefore it’s necessary to conduct regular competitive pricing analysis. This can help you maintain your price position or take advantage of the market shifts. By keeping pace with competitors’ pricing changes, you can strategically adjust your prices to gain a competitive edge.

Benefit 5 – Improve Your Pricing Position

Prevent losing your customers to your competitors by constantly offering the ideal pricing. This way, you can stay competitive even during tough market times and align the pricing with your profit goals.

For example, luxury brands must maintain higher pricing to attract wealthier customers. But without regular analysis and pricing adjustment, these brands are also at risk of being replaced by cheaper alternatives.

Even though following regular competitive pricing analysis is necessary, there are some challenges to it.

5 Best Tools for Competitive Pricing Analysis

Before we move on to learn how to conduct competitive pricing analysis, here are some tools that help you along the way. We have added various competitive pricing analysis software that can aid you in determining the ideal pricing for your product.

Here are those five tools.

1. SurveySparrow

✓ Free Version

14-Day Free Trial

G2 Rating: 4.4 (5)

Use Case: Market research and analysis of pricing, Customer data collection and analysis.

SurveySparrow is a leading survey software that can enhance the competitive pricing analysis process. Its conversational UI helps you collect detailed feedback on competitor’s pricing. These can further aid in understanding market trends, customer preferences, and so on.

It can be an invaluable tool, especially when you are testing out your new pricing strategy. SurveySparrow can measure how satisfied your customers are with the current pricing. With proper survey questions, you can collect qualitative feedback to understand how they actually feel and their emotions as well.

Key Feature:

• Conversational surveys with flexible survey question types.
• Multichannel survey distribution to collect comprehensive feedback.
• Customer sentiment analysis.
• Real-time analytics and reporting of feedback data.
• Advanced text analytics to clearly understand what market and customer needs are.

Pricing: The tool offers varying pricing tiers for its users. Based on your requirements, choose the ideal one for you. The starting price is $19 per month when billed annually.

2. Prisync

No Free Version

14-Day Free Trial

G2 Rating: 4.7 (5)

Use Case: Automate competitor price tracking.

Prisync offers real-time insights into competitors’ pricing strategies. It’s best used for automating competitor price tracking and dynamic pricing. It collects pricing data from competitor websites and provides you with detailed analytics to make informed decisions.

Key Feature:

• Automated price tracking and monitoring.
• Comprehensive reporting and analytics.
• Integration with eCommerce websites like Shopify and Magento.

Pricing: There are 4 different paid plans. The starting plan is “Professional” and is available at $99 per month (billed annually).

3. Model N

No Free Version

No Free Trial

G2 Rating: 4.6 (5)

Use Case: Price optimization, competitive analysis.

Model N is a pricing optimization tool specifically for life science and tech industries. It offers end-to-end revenue management solutions, including contract management and price quoting modules. It also provides data-driven pricing suggestions and manages complex pricing structures efficiently.

Key Feature:

• Advanced pricing suggestions based on market data.
• Revenue management and gross profit monitoring.
• Integration with eCommerce and sales platforms

Pricing: The details of their pricing are available upon request.

4. PROS

No Free Version

No Free Trial

G2 Rating: 4.1 (5)

Use Case: Competitor pricing tracking, dynamic pricing optimization.

PROS offers a complete solution for dynamic pricing optimization across various industries. You can expect real-time insights and dynamic pricing adjustments based on market trends. Doing so helps you maintain a competitive and profitable pricing strategy.

Key Feature:

• Smart analytics for pricing visibility and profitability.
• Integration with various sales channels.
• Real-time dynamic pricing recommendations.

Pricing: They offer two sets of pricing tiers – Essential and Advantage – both available at $6,250 and $14,000 per month respectively.

5. Pricefx

No Free Version

No Free Trial

G2 Rating: 4.4 (5)

Use Case: Pricing optimization and management.

If you are looking for a competitive pricing analysis tool that helps with pricing optimization and management, then try Pricefx. The tools are specifically designed for retail, manufacturing, and distribution sectors. It helps you set optimal prices and adjust them dynamically to market changes.

Key Feature:

• Dynamic pricing and profit planning.
• Quality training and tech support.
• Robust integration with various third-party tools.

Pricing: Connect with their team for details regarding pricing.

How to Conduct Competitive Pricing Analysis?

The following provides a step-by-step guide on how you can conduct a competitive pricing analysis. We have also included tips at each step to aid you through the process. Have a look at them.

Step 1: Identify Your Competitors

If you want to do a competitive analysis, the first and obvious step would be to determine your competitors. The competitors should be direct, offering similar products or services. Indirect competitors can also be considered, provided they offer alternative solutions.

Pro Tip: Use competitor analysis tools and online searches to collate the list of your top competitors.

Step 2: Gather Pricing Data

Once you have defined the competitors, collect the pricing data from them. The pricing data should include base prices, discounts, bundle offers and any promotional pricing.

Pro Tip: Visit the competitor’s website to collect pricing data. In the case where your competitors aren’t open about their pricing, try signing up for their newsletter or using price comparison tools. You can also consider using third-party market research tools for broader insights.

Step 3: Analyze Product Features and Value Propositions

While your primary goal is to compare prices, also give importance to product features, quality and UVP. This can help you understand why competitors are priced the way they are.

Pro Tip: Try creating a comparison matrix. It can help you identify your products’ strengths and weaknesses compared to those of competitors.

Step 4: Segment Your Market

Pricing differs with market segments. For example, the price of an Apple iPhone will be drastically different in India compared to the USA.

Pro Tip: Use customer data and market research to identify key segments. Depending on these, tailor your pricing strategy to meet the needs of each segment.

Step 5: Evaluate Your Costs & Margins

Understand and define your cost structure and the profit margin you want. This will help you determine the minimum price you can set without compromising the profits.

Pro Tip: Consider all kinds of factors to make sure your pricing covers expenses and achieves desired profit margins.

Step 6: Determine Pricing Strategy

Based on the gathered data and analysis, decide on a pricing strategy. This could be competitive, premium, or penetration pricing. Follow the link to learn more about pricing strategies.

Pro Tip: You should align your pricing strategy with your overall business objectives and market positioning.

Step 7: Test & Improve

Instead of implementing the decided pricing strategy on wide sale, implement it in selected markets. This allows you to fine-tune the pricing before a full-scale rollout.

Pro Tip: Use customer feedback tools to collect and analyze the customer perception of the pricing.

How to Implement a Competitive Pricing Strategy?

Once you are done with competitor pricing analysis, it’s time to implement a competitive pricing strategy. The strategy you implement will position your product in the market.

Here, you have three options –

1. Pricing above the market level
2. Pricing at the market level
3. Pricing below the market level

Let’s discuss each in detail.

1. Price Above the Market

As the name indicates, the pricing of your product will be above the market level. This positions your product as a premium one, potentially attracting wealthy customers. Follow this approach when your brand has a strong reputation and loyal customer base (willing to pay).

Pros:

• Improves product’s perceived value and image in the market.
• Increases profits per unit sold.
• Differentiate from others and position yourself as a luxury option.

Cons:

• Customers may leave for cheaper alternatives.
• Competitors might lower their pricing.
• Requires constant monitoring of market conditions.

2. Price at the Market Level.

Price matching involves setting your prices in line with your competitors. This strategy focuses on maintaining competitive parity and can be effective if your value proposition offers additional benefits.

Pros:

• Maintains price parity in the market.
• Prices will be seen as fair and competitive.
• Easier to market with competitive pricing.

Cons:

• Constant monitoring and adjustment can affect profitability.
• Risk of engaging in a price war, reducing overall margins.
• It may not stand out as a unique option.

3. Price Below the Market

Pricing below the market aims to attract cost-sensitive customers. Here you will be positioning your product as a more affordable option. This strategy can drive volume sales and increase market share. Try this if the market is highly competitive.

Pros:

• Increases sales volume.
• Quickly gains market share.
• Use as a loss leader to drive sales of more profitable products.

Cons:

• Low prices may be seen as low quality.
• Lower prices can squeeze profit margins.
• Competitors may also lower their prices, leading to a price war.

5 Challenges of Using Competitive Pricing Analysis

Like every other strategy, competitive pricing strategy also comes with its challenges. The following are the five important challenges every business should know about. They are –

#1. Accuracy and Availability of Data

Challenge:

Collecting accurate and up-to-date pricing data from competitors can be a daunting task. Not all competitors are open about their pricing. In some other cases, their prices may vary widely due to discounts or promotions.

What could be the impact?

Inaccurate data can lead to incorrect pricing decisions, leading to reduced sales and profits.

How can you tackle this?

Use multiple data sources to collect pricing data. This can include visiting competitor websites, doing market research, and using third-party pricing tools. Also, regularly update and coss-verify your data to ensure accuracy.

#2. Market Changes (Constantly)

Challenge:

The market is prone to change, and so does the pricing. Depending on factors like seasonal variations, new product launches, economic shifts, and so on, you need to alter the pricing.

What could be the impact?

Keeping up with these changes requires continuous monitoring and analysis. This can be resource-intensive.

How can you tackle this?

Use tools that can automate these repetitive tasks and conduct continuous tracking and monitoring. Follow this up with a regular review and adjust your pricing strategies based on the latest market data.

#3. Time-Consuming

Challenge:

The last challenge discussed the necessity of doing continuous tracking and monitoring of competitors. While the process is achievable, it’s very time-consuming and resource-intensive.

What could be the impact?

Smaller businesses and those with limited resources may find it difficult to perform this regular analysis.

How can you tackle this?

Instead of doing a comprehensive analysis, focus primarily on the key (direct) competitors and critical products. Here also, try to automate data collection and analysis at the same time and reduce manual effort.

#4. Data Misinterpretation

Challenge:

Misinterpreting competitor pricing data can lead to skewed pricing strategies. This could be because the data does not account for differences in product features or segments.

What could be the impact?

Incorrectly aligning prices may result in lost customers or reduced competitiveness.

How can you tackle this?

Train your team in data analysis and interpretation. Alos, use segmentation to compare prices accurately and consider the contact of each competitor’s pricing strategy.

#5. Price Wars

Challenge:

As much as the title rhymes with Star Wars, it’s not a healthy one to have in the marketplace. An intense focus on competitor prices can trigger price wars. What this means is that businesses will continually lower prices to undercut each other.

What could be the impact?

Price wars can devalue products and significantly reduce profit margins.

How can you tackle this?

Differentiate your product from your competitors with a unique USP. Instead of focusing solely on pricing, give more importance to quality, features, and customer services. These can justify and avoid engaging in destructive price wars.

Blend Survey Software & Price Tracking Tool

While it’s important for you to keep track of competitor’s pricing and other offerings, understanding your customers is also essential. That’s why we suggest you consider a blend of survey software and pricing tracking software for analysis. This way you can collect more data and do a detailed analysis on the market.

For survey software, look no further than SurveySparrow. It offers advanced features for in-depth analysis and offers a highly intuitive UI for ease of use.

The tool offers a free forever plan and a 14-day free trial for its premium features. Sign up to check out how the tool can help you with competitive pricing analysis.

FAQs

1. How Does Competition Affect Pricing Decisions?

Competition forces businesses to adjust prices to remain competitive. This is either by lowering prices or adopting flexible pricing strategies based on market conditions.

2. How Does Competitive Pricing Affect Consumers?

Competitive pricing benefits consumers by lowering prices and increasing product variety. However, it can lead to concerns about product quality and value proposition.

3. How do you Measure Pricing Competitiveness?

You can measure pricing competitiveness by comparing prices with competitors and tracking sales performance and market share. Also, gathering customer feedback on price perceptions can be helpful.