Competition Based (Price Setting)

Competition-based pricing strategy involves setting the price of a product or service based on what the competition is charging. This strategy is particularly useful in markets with high competition and similar products.

Calculations

When a price is based on competition, it is calculated in 3 steps:

1. Find the competitor’s price (in the competition table) or calculate it.

2. Perform a margin check.

3. Reposition the price (i.e. modify the competition price by a percentage or absolute value).

1. Find Competitor’s Price

Competitor’s price can be selected based on one of two approaches (only one of them can be used at a time):

• Competitor Position – Selects one competition record to align the price with.

  • min / max – Selects a minimum/maximum available competitor price.

  • min + X / max - Y – Selects minimum/maximum competitor price position and adjusts it by a given value. For example “min + 1” means the 2nd lowest competition price.

  • 10%, 50%, 70% – Select the target competitor based on the provided percentage. The formula for the calculation is: TargetCompetitorPosition = NumberOfCompetitors * Percentage. For example, 10% means when you would take all the competition prices, and put them to a row sorted by size, you would pick the one which is on the 10% position.

• Price Position – Select a price at the given percentage point. A value of 0% matches the lowest competition price and value of 100% matches the highest competition price. The formula for calculation is: Price = CompetitorMinPrice + (CompetitorMaxPrice - CompetitorMinPrice) * Percentage.

  • Note that the calculated price does not need to exist in the competition data, it is only derived from them.

  • Limitation: The Competitor Name is not known in this case, as the price is derived, and not directly retrieved from a competitor record.

The price list/grid will contain the Competition Data and Relevant Competition Data fields showing the competition data used for the row.

2. Margin Check

The engine supports Force Margin Check to verify that the selected competitor price is affordable. You can set values "Yes/No" in the table to turn the functionality on or off.

If the new competitor price is affordable after applying Force Margin Check, the engine will find the corresponding competitor name again and calculate the total of skipped competitors counting from the old competitor price to the new one. Finding the corresponding competitor name is not relevant for the “Price Position” mode. In such case, the lowest affordable price will override the current price if in range of available prices.

3. Reposition the Price

Then you can additionally "reposition" the price by using:

• Percentage – Modifies the price by a provided percentage. To make the price 5% cheaper, you use -5%; the same applies for a positive adjustment.

• Absolute value – Modifies the price by an absolute value. To make the price 10 units cheaper, you use-10; the same applies for a positive adjustment.

The result price will be in the price list/grid in Final (List) Price.

Reference

• This strategy requires the PSP Product Competition Module.

• This strategy is calculated using Competition Engine.

Use Case Examples

Use cases for implementing a competition-based pricing strategy can include:

E-commerce Retail – An e-commerce retailer selling consumer electronics uses competition-based pricing to adjust the prices of their products in real-time. By monitoring the prices of identical or similar products on competitor websites, the retailer can adjust their prices to be slightly lower, matching, or slightly higher depending on their value proposition and brand positioning. This strategy helps the retailer stay competitive, attract price-sensitive customers, and increase market share in a highly competitive online marketplace.

The key to success with competition-based pricing is not just to set prices in relation to competitors but also to continuously monitor market dynamics and adjust pricing strategies as needed to maintain competitive advantage and meet business objectives.