Competition-based pricing is a type of price setting approach for a product or service. In this approach a company checks out its competitor’s price for a product or service and then sets a lower price/higher price depending on its needs. In case the particular market segment has decent competition customers would have ample choice. But most of the time customers would prefer products that are priced within the normal range.
Some of the advantages of competition based pricing are its simplicity and accuracy. There is relatively little need to spend money for any real market research or pricing research. In sectors such as retail which is already over crowded with different products it has the potential to give businesses decent enough cash flows to survive.
Experts warn that Competition-Based Pricing may make companies lazy. Companies can lose sight of the need to do pricing research. Over time the importance of pricing research is forgotten which can be bad for any organization. This method of pricing assumes that competitors have used the correct pricing approach which can be a fallacy sometimes. Marketing experts say that although this type of pricing mechanism need to be used by companies they need to use as part of an overall pricing strategy after doing decent research.