The Complete Guide to Competitor Price Analysis

TL;DR

• Grasp the critical role of competitor price analysis in shaping your pricing strategy to outshine rivals in the market.
• Identify the steps to evaluate competitor pricing, including analysis of market share, consumer segments, and overall demand.
• Gain insights into the four key benefits of a competitor analysis pricing strategy, from spotting revenue opportunities to learning from competitors' pricing mistakes.
• Stay agile in your pricing decisions by continuously monitoring competitor prices and market trends, as exemplified by Slack's strategy.
• Consider the challenges of competitor price analysis, such as data accuracy and market volatility, and how to overcome them.
• Develop a dynamic competitive pricing strategy by thoroughly researching competitors, analyzing pricing data, and understanding the value offered to customers.
• Togai plays a crucial role in streamlining and optimizing pricing implementation to support businesses in their competitive pricing strategies.

Competitive Pricing Analysis: A Comprehensive Guide for Success

Determining the right pricing strategy is crucial for a company's success. Yet, figuring out how to effectively price products can be a complex challenge. This is where competitive pricing analysis comes in.

Keeping a close eye on the pricing techniques of other companies in the market is key. This approach ensures continuous adjustment and relevance in achieving business goals. But what is competitive pricing analysis?

Simply put, it's a process for businesses selling similar products. It involves the collection and analysis of data on competitors' pricing strategies. This crucial step provides valuable market insights, informing well-informed decisions about a company's own pricing strategy.

Competitive pricing analysis is different from competitive pricing. Read more about it here.

In this article, we're going to break down this process. We'll guide you through each step of conducting a competitive pricing analysis. By understanding these steps, you can effectively evaluate the pricing strategies of your competitors. This knowledge equips you to make strategic decisions to stay competitive in the marketplace.

What is Competitor Price Analysis?

Competitive pricing analysis is all about understanding your industry. You need to examine what's happening around you. This means looking at how your competitors, those in your market, are pricing their products.

The goal? To see how your own pricing stacks up. It's about making comparisons, seeing the differences, and understanding the reasons behind them.

By exploring your competitors' pricing approaches, you get to:

• Make well-informed decisions about your own pricing.
• Understand the strengths and weaknesses in your competitors' pricing strategies.
• Use this knowledge to create a stronger pricing strategy for your own products.

So, what does a well-done competitor price analysis comprise? A thorough analysis takes into account:

• The indirect and direct competitors in the market
• Variations in services and products
• The sales volume
• The type of consumer segments
• The demand for the product or service
• General conditions affecting the market

What Is the Importance of Competitive Pricing Analysis

Research states that 80% of buyers compare the prices of same kind of products from other brands before deciding to make a purchase. Since this comparison is a crucial parameter, businesses need to adopt more clever tactics like competitive pricing to garner the buyers’ attention.

But this is not the only reason why competitive pricing analysis is important. The analysis itself has a host of benefits. It allows the business to expand its market share and bring its brand into the limelight. Obviously, these effects result in good sales, better revenue, and good cooperation from suppliers.

But these benefits are only the tip of the iceberg. Let’s go further into the details.

4 Benefits of Competitive Analysis Pricing Strategy

1. Good revenue and bigger market share

A comprehensive competitive pricing analysis empowers businesses to identify potential opportunities for price increases without sacrificing their market share.

For instance, let's consider a hypothetical scenario. SaaS company A is a leading player with a premium product offering, but they notice that their pricing has remained relatively stagnant while their competitors have increased their prices. Through a competitive pricing analysis, SaaS company A discovers that their direct competitors, SaaS company B and SaaS company C, have successfully raised their prices without experiencing significant customer attrition.

Armed with this information, Company A can strategically modify its pricing strategy in order to align with the market while still maintaining profitability. They might choose to implement a moderate price increase, ensuring that their product's perceived value justifies the higher price point. This allows Company A to capture additional revenue and improve their profitability without losing their existing customer base.

2. Assess the competitor’s weakness

Competitor analysis helps you to see the strengths and weaknesses in your competitor's pricing. This information will show you "how not to price your product".

MoviePass, a SaaS platform providing subscription-based movie ticketing, provides an example of a competitor's weakness in pricing. The service initially attracted a lot of attention when it offered unlimited movie tickets for a low monthly fee. However, this pricing strategy proved to be unsustainable. The company was burning through cash at an alarming rate, as they were paying full price to theaters for each ticket used by their subscribers.

Other businesses in the entertainment and streaming industry, such as Netflix and Hulu, took note of this. They understood that while a low price could attract customers, it also needed to cover operational costs and be sustainable in the long term. These companies were able to learn from MoviePass's mistake and avoid underpricing their services. This is a clear illustration of how competitive price analysis can highlight a competitor's weaknesses and help a company avoid similar pitfalls.

3. Gain insights into customer behaviour

A competitor pricing analysis is more than just numbers. It tells you more about how your customers react to your products and prices. You can learn about the following:

• Value perceptions
• Customer satisfaction
• Brand loyalty
• Purchase cycles
• Price sensitivity

With these insights, you can garner a bigger customer base and retain existing clients.

4. Respond quickly to market changes

To succeed in a competitive market, you need to stay one step ahead. That's where a competitor analysis pricing strategy comes in. Here's what it means:

• You constantly study the competition and their pricing.
• It keeps you in the game as a long-term player.
• You understand that markets are always changing, and so should your pricing.
• You know that sticking to one pricing decision may not work all the time.
• By watching competitor pricing and market trends, you can react to changes more effectively.

In simple terms, it's all about adapting, evolving, and keeping an eye on the competition.

Slack, the popular team collaboration tool, is a great example of a SaaS company that uses competitor analysis pricing strategy effectively.

When Slack entered the market, there were already a few established players. Slack didn't just match their prices or offer lower rates. Instead, they analyzed their competitors' pricing strategies and understood the value that users placed on such platforms. They then came up with a flexible pricing structure that offered a free tier with limited features and paid tiers with more functionalities.

As the market evolved and competition increased, especially with the introduction of Microsoft Teams, Slack continued to monitor competitor pricing and trends. They stayed agile, adjusting their own pricing strategy as needed to remain competitive while still delivering value to their customers.

Slack's approach underscores the importance of not just setting a single price point, but continuously monitoring the competitive landscape and being ready to respond to market fluctuations.

Now, let’s deal with the other side of the coin- the challenges you may face with competitor pricing analysis.

Top 3 Drawbacks of Competitor Pricing Analysis

1. You may end up with inaccurate data

Competitor pricing information is time-consuming and prone to errors. This is because data is collected from different sources which might have conflicting information.

2. Incorrect competitor categorization

In crowded markets competition is excessive as fellow players compete to get a chunk of the market share. During the analysis, it may take time to identify the right competitors. It is not simply a matter of looking at competitors' prices in isolation; considering the context in which those prices were set is crucial for a comprehensive analysis.

3. Inconsistent market fluctuations

Market conditions can change every single day. This can hinder your effort to keep up with your competitors' pricing unless you can adapt as quickly as the market fluctuations.

Being aware of these challenges will help you take the necessary steps to handle them and make them work to your advantage. You can also invest in data acquisition tools and consider the broader market context for competitor pricing analysis. If executed tastefully, this strategy helps you get a headstart to catch the attention of your target audience

4 Ways to Create an Effective Competitive Pricing Strategy

1. Identify your competitors

This is a strategy where you need to go beyond identifying your competitors. You also need to categorize them. You have to identify competitors who:

• Offer the same products or services.
• Serve the same target market.
• Offer the same kind of products but serve a different market.

You may also rely on a data driven strategy to define and categorize competition. The analysis of competitive prices and categorization of competitors must also occur repeatedly based on the type of product or the segment of the market.

2. Analyze and collect pricing data

Once you have defined relevant parameters of competitive pricing data, you can begin collecting the data. To make this happen, you can:

• Study the features and capabilities of your competitor's product.
• Analyse acquisition strategies different players implement. This can be coupons, offers etc
• Track the price index to know the position of the company in the market for a specific offering for a specific period.

When doing pricing analysis you need to keep updating your pricing study results and account for effective changes.

3. Research what makes them valuable

To conduct a comprehensive competitive analysis, it is essential to thoroughly evaluate the overall value proposition of your competitor's products or services. This analysis goes beyond just price comparison and encompasses various factors such as:

• Quality and features of their offerings
• Branding, packaging, and presentation
• Their customer reviews and value perceptions

You can also consider if:

• Your market competitors are competing with you for the price of same kind of products.
• Other value propositions that impact the pricing of their services or products.

This understanding is essential when you're setting your own prices. Why? Because it helps you make decisions based on a clear view of the market. In simpler terms, it ensures that you're comparing apples to apples, so your decisions are as informed as possible. This level playing field is key to competitive pricing.

4. Make price comparisons

Once you are equipped with the pricing data in your hands and an understanding of their value proposition, you need to assess the data and identify trends and patterns. By doing this, you'll be able to figure out the pricing tactic used by your competitors.
For instance, you can look for the following details:

• If they are adopting premium or discount pricing.
• If they are relying on volume discounts or promotional pricing.
• If they are providing bundle pricing.

Identify their weakness and strengths. Understand what their data tells us. Only then will you be able to anticipate what they will do next and strategize yours.

Your long-term pricing strategy can be based on all of this information to ensure you remain competitive at all times while increasing your market share.

Let’s Wrap Up

In the ever-evolving world of business, pricing plays a pivotal role in the success of any company. Crafting a robust competitor analysis pricing strategy requires careful consideration of numerous data-driven factors, including parameters and quality. Moreover, it is imperative to view pricing as an ongoing process seamlessly integrated into your business operations. By adopting a comprehensive approach to pricing, you can make strategic decisions that drive the growth of your business.

To streamline and optimize your pricing implementation, Togai, the leading pricing implementation platform, is here to assist you every step of the way. Ready to see how Togai can transform your pricing technique? Schedule a free demo today and discover the endless possibilities that await your business.