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What Market-Based Pricing Can Offer Retail?

Get to know more about market-based pricing, its benefits, and its drawbacks. Further, explore how to implement the phenomenon and make the most of it in business.


Have you ever wondered what market-based pricing can offer retailers?

 

Market-based pricing, also known as competitive pricing, is an approach to setting good prices for products to meet market changes. Here, we’ll present how it’s done and what benefits and appropriate applications of the strategy can be achieved.

What is a market-based pricing strategy?

Market-based pricing strategy implies using pricing to boost sales volumes, gain competitive advantages, and increase customer loyalty by investigating competitors’ prices and determining approaches that use price as an effective business instrument. The smart pricing approach is the best method of bringing forward market-based pricing. The smart part about it is about understanding the underlying principles of market and competition and using such insights for better pricing strategies.

Market-based pricing is the competitive-driven approach. Companies use pricing to compete with rivals and create conditions to attract new clients and boost the loyalty of existing consumers. Market-based pricing strategy requires considering many factors and a massive volume of data.

The impact of market-based pricing on the business environment

Market-based pricing strategies can be applied to numerous businesses and markets. However, it can be especially important in situations experiencing a high degree of competition. When several companies offer similar products for similar prices, a perfect situation for competitive pricing occurs. Keeping that in mind, when the preconditions for market-based pricing take place, rivals investigate competitors’ prices to understand whether lowering or increasing the prices will be the best approach to consider.

While competitive pricing might seem like an easy strategy to implement, there are particular challenges to consider. The general idea is to adjust prices to market changes. In such a case, the primary obstacles occur when searching for data, especially when companies decide to price SKUs in the context of competition. There is always a problem of following false data or not having access to a proper one.

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The benefits and drawbacks of market-based pricing

After overcoming key obstacles, market-based pricing can bring various benefits. In such a context, it is crucial to consider the following:

  • Lower prices bring a competitive advantage. Competitive pricing offers a chance to gain a competitive advantage fast. Namely, one can lower prices and get consumer attention by showing more attractive prices.
  • Flexibility in price points. Working with lower and higher prices allows a particular degree of flexibility. Respectively, having some leverage with price points grants a business some options in terms of competitive advantage.
  • Meeting consumers’ demands. Setting lower prices ensures a boost in sales volumes, as consumers often prefer lower prices.
  • Revenue increase. Setting prices for unique products creates better sales conditions, indicating higher revenues. Lower prices can be set to sell more products, while higher products bring more value.

In contrast to particular benefits, there are certain potential disadvantages that competitive pricing can bring. These are the following:

  • Production losses. Relying too heavily on the competition can lead to production and margin cost losses. A company might try to compete too hard at the expense of resources, thus leading to a loss by maintaining lower prices.
  • A miscalculation in decision-making. Companies can get wrong insights on competitive pricing. If they follow the decisions based on wrong inputs, it will lead to bad business decisions.
  • Issues with data. Working with current competitive pricing heavily relies on data and proper data sources. Firms can face massive problems accessing appropriate data sources and getting accurate information.

Respectively, market-based pricing can bring benefits as well as it can inflict harm. It all depends on the understanding of the concept and the conditions upon which it should be implemented.

The market-based pricing implementation process

There are several factors to consider when adopting market-based strategies.

First and foremost, competitive pricing works with elements like prices, deals, and benchmarks. These factors help understand competitors’ pricing strategies and give a general idea of a market’s condition.

Second, adopting a market-based strategy requires aligning it with current business objectives. A company needs to maintain its relevant position in the market by following specific business goals and setting prices. Otherwise, a company can lose its loyalty and market position.

Third, one should know what type of data to work with, where to get it, and how to process it. Respectively, working with competitive pricing relies on a history of sales, various price points, price index, and availability of goods.

The final aspect is about choosing a way to process information. The majority of companies appeal to modern instruments, such as advanced software. For instance, there is product matching, a type of software that can help process massive volumes of data in a fraction of time.

In such a context, following these steps guides implementing market-based strategies. It is crucial to understand that competitive pricing should be approached with caution and care. This is why one should follow the steps mentioned above to make the best of the strategy.

The impact of market-based pricing on the business environment

Companies often use competitive pricing when they rival similar companies offering similar products. However, it is crucial to remember that clients do not always prefer products with lower pricing points. There is evidence showing that consumers are willing to spend more money on products graning unique value. In reality, such products and services need higher price points.

Market-based pricing is especially relevant for retail. One should also consider the massive changes occurring in the market. For instance, many people are using the Internet to make purchases. With the rise of online shopping, customers are getting more opportunities to check different stores, products, and competitors. At this point, it becomes both about prices and key-value items businesses have to offer.

Concluding remarks

Market-based pricing can bring massive benefits to any industry, including retail. However, it should be properly implemented to take advantage of the situation, and various obstacles must be considered. Ensure that you have proper access to data sources and obtain relevant data. Besides, advanced instruments like product matching software should be used. Finally, use competitive pricing with caution and don’t become overly reliant on competitors.

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What Market-Based Pricing Can Offer Retail?

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