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More information is available to consumers than ever before. They’re never more than a few clicks away from finding out what similar things your competitors sell—and whether they can get a better bargain elsewhere thanks to their constant internet access. 

Price outweighs convenience, delivery speed, and free return choices as the most important consideration in seasonal purchase decisions. Price comparisons are a problem for all shops, not just internet.

Competitive pricing contrasts your products against a similar product from a rival. What is the goal? To assess if you’re alienating customers by overpricing or losing money by offering a too large discount.

What is Competitive Pricing?

The technique of measuring the price at which a competitor sells similar products is known as competitive pricing. 

Examining the prices of competitors will help you better comprehend the market’s possibilities. You can then assess how your product stacks up against those alternatives. To build customer perception, this aligns positioning, value propositions, and price. Consumers will be able to learn the entire story behind your product.

If you set your price too high, you can lose out on potential customers. Price items too cheap and sell them for less than they’re worth.

Types of Competitive Pricing on Shopify

Penetration, promotional, and captive pricing are the three forms of pricing. Here’s a rundown of all three models, along with suggestions for when to utilise them.

Penetration Pricing

When you’re competing against other companies for the lowest price, you’re using penetration pricing. The goal is frequently to swiftly capture the attention of consumers and gain market share. 

Unless you have economies of scale, you will have to compromise profitability in order to sustain competition. Costco, for example, may provide things at the lowest price because it has millions of consumers who generate (although little) profits. 

If you create a relationship with buyers after their first transaction, the penetration pricing model works. Once you’ve won them over on price, continue to cross-sell and upsell with more profitable product offerings.

Promotional Pricing

When you wish to temporarily discount your products for a limited time, you use promotional pricing. When you’re seeking to clear inventory, develop buzz, or draw attention to your brand, this makes sense. 

Promotional rates are most effective when used on a regular basis to draw attention to your business and attract new clients. The risk of promotional pricing, on the other hand, is that once your promotions and discounts become predictable, customers will wait for things to go on sale rather than paying full price. This might lower the value of your brand and attract the wrong type of customer.

Captive Pricing

When you sell a suite of additional products with a competitively priced core item, you’re using captive pricing. When you have supplementary things that provide functionality or extend the life of the core product, this price structure is quite effective. 

Consider printers, which are frequently on sale or extremely reasonably priced. Once the ink is dry, the trap is set. When compared to the cost of the initial printer, refills become prohibitively expensive. 

Similarly, video game consoles are offered at cost, with bigger profit margins on games and peripherals, which are promoted alongside the device.

Beating your Competitors on Pricing

Don’t compare retail prices of competitors in a vacuum while making pricing decisions. The monetary value of an item is determined by its quality, intended use, and target market. It’s a bad idea to base yours on the first competitor you encounter. 

Create a comparison chart that contrasts comparable competitors’ items against your own, but don’t be afraid to undercut them on price. Your profit margins don’t have to decrease to stay competitive as long as you can prove yours is worth the extra money.

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