The Advantages & Disadvantages Of A Pricing Strategy Based On Competition

Discovering the optimal pricing strategy remains an ongoing challenge. This article explores the complexities of a pricing strategy based on competition, seeking to equip business professionals, managers, and decision-makers with a thorough grasp of its advantages and disadvantages.

discussing pricing strategy based on competition

Advantages Of A Pricing Strategy Based on Competition

A pricing strategy based on competition comes with a set of distinct advantages that can significantly impact a business’s performance in the market:

Capitalising on industry trends

A competition-driven pricing model allows businesses to align their pricing with prevailing market trends, whether it be the integration of sustainable practices, technological advancements, or evolving consumer expectations. 

Aligning prices for market infiltration

An immediate boon lies in the potential for enhanced market positioning. By carefully aligning prices with or marginally below competitors, a business can orchestrate its entry into the market, creating an attractive proposition for price-sensitive consumers. This deliberate alignment not only entices a broader audience but also establishes a foothold in the competitive arena.

Attracting discerning consumers

This strategic pricing approach enables businesses to appeal to consumers who are meticulous in their decision-making process. As customers compare options, a competitively priced product becomes a compelling choice, fostering trust and establishing the brand as a viable contender in the market.

Enhancing perceived value

A competition-driven pricing strategy contributes to enhancing the perceived value of the product or service. By presenting offerings at a competitive rate, customers may associate the brand with affordability without compromising quality, thus contributing to a positive brand perception.

Swift adaptation to consumer demands

Market changes are inevitable, ranging from shifts in consumer preferences to economic fluctuations. With a competition-based pricing strategy, businesses can pivot swiftly in response to these changes. By staying attuned to evolving consumer demands, they can make real-time adjustments to their pricing strategy, ensuring continued relevance and resonance in the market.


Increased customer acquisition

At the heart of business growth lies the art of customer acquisition. A pricing strategy based on competition proves to be a  catalyst in expanding the customer base and fostering organic growth.

Strategic leverage through lower prices

Lower prices, strategically implemented, serve as a powerful magnet for customers. Where value for money is a prevailing concern, a competition-driven pricing strategy provides businesses with the strategic leverage to lure customers away from competitors. 

uses of market research

Disadvantages Of A Pricing Strategy Based On Competition

However, the allure of competitive pricing is not without its pitfalls. It is essential to carefully weigh the disadvantages before committing to such a strategy:

Reduced profit margins

A significant drawback of competition-based pricing is the potential for reduced profit margins. Constantly striving to match or beat competitors’ prices may erode profitability, making it challenging to invest in innovation or sustain business operations.

Susceptibility to pricing wars

Engaging in a pricing battle with competitors can lead to destructive pricing wars. These wars, while initially enticing to consumers, can harm the industry by compromising product quality, customer service, and the overall health of the businesses involved.

Potential brand devaluation

A race to the bottom in terms of pricing can lead to the devaluation of a brand. Customers may associate lower prices with inferior quality, impacting brand perception and long-term customer loyalty.

Balancing Competitive Pricing With Value Proposition

Navigating the balance between competitive pricing and delivering unique value is crucial for long-term success.

1) Value proposition as a differentiator

In a market filled with choices, a strong value proposition becomes a crucial tool for businesses aiming to set themselves apart. Its significance cannot be emphasised enough. It goes beyond simply providing a product or service; it involves shaping an identity that connects with the intended audience.

2) Honing in on superior quality

One avenue for creating a distinctive value proposition is by prioritising superior quality. Whether it’s the craftsmanship of a product or the precision of a service, businesses can carve out a niche by becoming synonymous with excellence. Customers, in turn, are more likely to be willing to pay a premium for the assurance of receiving unparalleled quality.

3) Exceptional service as a hallmark

Another means of differentiation lies in exceptional service. Beyond the product itself, the customer experience plays a pivotal role in shaping perceptions. Businesses that prioritise stellar customer service not only retain existing customers but also become the go-to choice for those seeking a seamless and pleasant interaction.

4) Innovative features that resonate

Innovation is a cornerstone of a compelling value proposition. By incorporating cutting-edge features, businesses can position themselves as pioneers in the market. Whether it’s technological advancements, eco-friendly practices, or unique functionalities, innovation captivates customers and sets a brand apart from the competition.

5) Avoiding a Race to the Bottom

While competitive pricing is a powerful tool, businesses must exercise caution to avoid succumbing to a race to the bottom, where price becomes the sole battleground.

6) Strategic Pricing

Encourage businesses to view pricing not as a race but as a carefully orchestrated strategy. It involves identifying the sweet spot where prices are competitive enough to attract cost-conscious consumers while preserving profitability. This strategic approach considers factors such as production costs, perceived value and the overall positioning of the brand in the market.

7) Highlighting value to justify pricing

In the pursuit of competitive pricing, businesses should continually highlight the value embedded in their offerings. Effective communication is key—articulate the reasons why the product or service commands a certain price, emphasising the unique features, quality, or service that sets it apart. When customers understand the value they receive, they are more likely to justify the price differential.

8) Building perceived value over time

Perceived value is an asset that appreciates over time. Businesses should focus on consistently delivering on their value proposition, reinforcing the idea that, despite competitive pricing pressures, they provide an unparalleled experience. This long-term perspective fosters brand loyalty and resilience against short-lived fluctuations in the market.

Key Considerations In Implementing A Competition-Based Pricing Strategy

Implementing a pricing strategy based on competition requires a strategic approach and a keen understanding of market dynamics:

A) Thorough market research

There is a need to conduct comprehensive market research to understand competitor pricing, customer expectations, and market trends. Informed decisions rely on a thorough understanding of the competitive landscape.

B) Competitor analysis

Provide insights into the significance of ongoing competitor analysis. Regularly monitoring competitors’ pricing strategies helps businesses stay agile and make timely adjustments to maintain competitiveness.

C) Ongoing evaluation of pricing dynamics

Businesses need to adopt a dynamic approach to pricing. Regularly assess the effectiveness of the pricing strategy, considering factors such as customer response, profitability, and changes in the competitive landscape.

Final Thoughts

In conclusion, a pricing strategy based on competition offers both opportunities and challenges. It can propel a business forward by improving market positioning, fostering responsiveness, and driving customer acquisition. Simultaneously, the risks of reduced profit margins, pricing wars, and brand devaluation necessitate a nuanced approach.