Find out how competition drive pricing can help businesses stay attractive to consumers without engaging in price wars. Explore the key aspects and benefits of this pricing strategy.
What is competition drive pricing?
Competition Drive Pricing is a pricing strategy where a company sets its prices based primarily on the prices charged by competitors rather than on its own costs or market demand. This approach involves closely monitoring competitors’ pricing and adjusting one’s own prices to remain competitive in the market.
Definition of Competition Drive Pricing
It is a pricing strategy where a company sets its product prices based on the prices set by competitors in the market. This approach focuses on gaining or maintaining market share by aligning prices with those of similar products or services offered by competitors. Businesses utilizing this strategy often react to price changes made by competitors in order to remain attractive to consumers while striving to avoid price wars.
Key aspects of competition drive pricing include:
Market Analysis: Businesses continuously analyze competitors’ pricing to determine the optimal price point for their products or services.
Price Matching: Some companies may adopt a policy of matching or slightly underpricing competitors to attract customers.
Dynamic Pricing: Pricing can be adjusted in real-time in response to changes in competitor prices.
While this strategy can help attract customers and maintain market share, it also carries risks, such as price wars that can erode profit margins.
Pros and Cons of Competition Drive Pricing
Pros or Advantages
Market Relevance: By aligning prices with competitors, businesses can remain relevant in a competitive market, ensuring they do not lose customers due to price discrepancies.
Customer Attraction: Lower pricing than competitors can attract price-sensitive customers, potentially increasing market share.
Simplicity: This pricing strategy provides a straightforward approach to pricing, as it relies on observable competitor prices rather than complex cost analyses.
Quick Adaptability: Companies can quickly adjust their prices in response to competitor moves, enabling them to remain competitive.
Enhanced Market Insight: Continuous monitoring of competitor pricing can provide valuable market insights, helping businesses understand market trends and consumer behavior.
Cons or Disadvantages
Profit Margin Erosion: Constantly matching or underpricing competitors can lead to reduced profit margins, impacting overall profitability.
Price Wars: Engaging in aggressive pricing strategies can spark price wars, where competitors continuously lower prices, damaging all parties involved.
Neglect of Value Proposition: Focusing solely on competitors’ prices can lead businesses to overlook their own unique value propositions, diminishing their brand identity.
Short-term Focus: This strategy may promote reactive rather than proactive pricing decisions, leading to missed opportunities for long-term growth.
Cost Structure Ignorance: Pricing decisions based on competitor prices may not take into account the company’s own costs, potentially leading to unsustainable pricing models.
Examples of Competition Drive Pricing
Competition drive pricing is prevalent across various industries. Here are a few examples demonstrating how companies implement this strategy:
1. Retail Sector
In the retail industry, companies like Walmart and Target often adjust their prices based on competitor offerings. If one store lowers the price on a product, others may follow suit to keep their sales competitive. For instance, if Target offers a popular brand of detergent at a lower price, Walmart may reduce their price accordingly to attract customers.
2. Airline Industry
Airlines frequently utilize competition drive pricing. If one airline announces a fare reduction for specific routes, other airlines on the same route may adjust their prices. For example, if Southwest Airlines lowers its fare for a flight to Cancun, airlines like American or Delta may respond with similar price cuts to avoid losing passengers.
3. Online Marketplaces
Platforms like Amazon use dynamic pricing strategies, which are influenced heavily by competitors. When one seller reduces their price for a particular gadget, Amazon’s algorithm may adjust the price of similar products in real-time to remain competitive. This allows Amazon to maintain its appeal to price-sensitive consumers.
4. Fast Food Industry
Restaurants often watch their competitors, especially during promotional periods. For instance, if McDonald’s launches a value menu promotion, Burger King may introduce its own limited-time offers to match McDonald’s, ensuring they attract the same clientele looking for budget-friendly options.
5. Telecommunications
Mobile service providers like Verizon, AT&T, and T-Mobile frequently monitor each other’s pricing plans. If T-Mobile introduces an attractive plan with lower rates, both Verizon and AT&T may revise their plans to match or beat T-Mobile’s offerings, thus retaining their customer base.
These examples illustrate how competition drive pricing helps businesses remain relevant and competitive in their respective markets while facing the inherent challenges associated with this strategy.
Unlock the power of competition based pricing. Find out how to set prices that attract customers while ensuring profitability in competitive industries.
What is competition based pricing?
Competition-based pricing is a pricing strategy where a company sets its prices primarily based on the prices of its competitors. This approach involves analyzing the market and considering how competitors are pricing similar products or services. The goal is to offer competitive prices that attract customers while still ensuring profitability.
Definition of Competition-Based Pricing
Competition-based pricing is a pricing strategy where businesses set their product or service prices primarily based on the prices established by their competitors. This method involves closely monitoring the pricing structures of rival companies and adjusting one’s own prices accordingly to remain attractive to customers while aiming to maintain profitability. The approach helps businesses stay competitive in the market, especially in industries with significant competition.
Key elements of competition-based pricing include:
Market Analysis: Companies monitor competitors’ pricing and market trends to determine the appropriate price point for their own products.
Price Matching: Some businesses may choose to match or slightly undercut their competitors’ prices to draw in customers.
Differentiation: While prices are influenced by competitors, companies may also consider their own unique selling propositions (USPs) to justify higher or lower prices.
Dynamic Pricing: Prices may change frequently as companies respond to shifts in competitors’ pricing, customer demand, and market conditions.
This pricing strategy is commonly used in industries like retail, hospitality, and electronics, where competitive pressures are significant.
Increased Sales: Competitive pricing can lead to increased sales volumes, especially if a company effectively undercuts competitors or matches their prices, drawing in price-sensitive customers.
Quick Adjustments: Companies can quickly adapt their pricing strategies in response to competitive changes, helping maintain a strong market position.
Reduced Price Wars: By keeping prices competitive without undercutting too aggressively, businesses can avoid damaging price wars that could erode profit margins across the industry.
Cons or Disadvantages
Profit Margin Pressure: Constantly matching or underselling competitors can lead to lower profit margins, impacting overall business profitability.
Limited Differentiation: Focusing too much on competitors’ prices can prevent businesses from emphasizing their unique value propositions, leading to a lack of brand identity.
Reactive Strategy: Competition-based pricing may lead to a reactive rather than proactive pricing strategy, limiting innovation and the potential for creating new pricing models.
Ignoring Costs: Businesses may overlook their own costs when setting prices based solely on competitors, which can result in pricing that doesn’t cover expenses and can lead to financial losses.
While competition-based pricing can provide a strategic advantage in attracting customers, it’s important for businesses to balance this approach with their own cost structures and brand identity to ensure long-term success.
Competition-Based Pricing Examples
Retail Sector Example:
A popular electronics retailer may observe that its main competitor is selling a specific model of smartphone for $699. To attract price-sensitive customers, the retailer decides to price the same smartphone at $689, slightly undercutting the competition while maintaining a sustainable profit margin.
Grocery Store Chains:
Two rival grocery chains often engage in competition-based pricing for staple items such as milk and bread. If one grocery store lowers the price of a gallon of milk to $3.49, the competing store may quickly adjust its price to match or offer a slight discount at $3.47 to draw in customers.
Airline Industry:
Airlines frequently use competition-based pricing, especially for popular routes. If competitor A sells a ticket from New York to Los Angeles for $299, competitor B may set a price of $289 to entice travelers seeking the best deal. Airlines also adjust prices based on demand and competitor offerings, leading to dynamic pricing.
Subscription Services:
Streaming services often adjust their subscription prices based on what competitors are offering. If a new competitor launches with a subscription fee of $9.99 per month, existing services may re-evaluate their pricing structures to ensure they remain competitive, possibly lowering their rates or introducing promotional offers.
Hotel Industry:
In a competitive tourist destination, hotels closely monitor each other’s rates. If Hotel A is offering rooms for $150 a night, Hotel B might lower its price to $145, or promote additional amenities such as free breakfast to encourage bookings without necessarily lowering prices significantly.
These examples illustrate how various industries implement competition-based pricing strategies to attract customers while navigating market dynamics.
Effective steps in Personal selling; 7 types – prospecting, pre approach, approach, presentation, overcoming objections, closing, and follow up. Personal selling is one of the forms of promotion or marketing communications used by organizations to communicate with the marketplace and drive purchases of their products. Along with advertising, public relations, and sales promotion – personal selling makes up the promotions mix or marketing communications mix of a company.
Here are explained; 7 Major effective steps in Personal selling.
What is Personal selling? Personal selling can define as; direct person-to-person communication between sellers and potential customers, with the aim of persuading potential customers to purchase products. Personal selling often occurs face-to-face, however it can also take place through telephone conversations, online video conferencing or online text communication.
Personal selling is an effective way to promote and sell high priced and/or complex products. This is because the person-to-person approach allows for a detailed explanation of products and any individual questions or concerns the customer has can immediately address.
Effective steps in Personal selling or steps in selling:
While it is establishing that no single approach to selling works, in all situations, still a generalization can draw and the Major effective steps in Personal selling can identify as under:
Prospecting and qualifying for Pre approach.
Pre approach.
Approach.
Presentation and Demonstration.
Overcoming objections.
Closing, and.
Follow up and Maintenance.
Now, explain each one;
Prospecting and qualifying:
First, steps in Personal selling; Identify and qualify prospects. Traditionally, the task of identifying the prospect rests with the salesman. Nowadays, with the advances in information technology and software like CRM, companies can establish direct relationships with the customers.
Thus, the task of identifying prospect is sharing and it makes the job of salespersons more focussed. The prospective customers are contacted and then sorted according to the level of interest and financial capability. The salesman can personally visit those customers where the chances of success are more.
Four main steps in prospecting are:
Formulating prospect definitions: This means defining the prospects according to their financial capacity and the interest to purchase. This helps in segmenting the prospects into the categories where chances of selling are more. This makes the selling activity more targeted.
Searching for potential accounts: After segmentation, the prospects are analyzed with respect to the probability of selling. This may involve an exploratory visit to the prospects or contacting them over the phone, man or Internet. This further narrows the focus area of the sales reps
Qualifying prospects and determining probable requirements: After having identified must probable prospects, their requirements are studied so that salesman can actually design a negotiation strategy that fulfills the prospect’s needs. This increases the probability of the success of a sales call.
Relating company products to each prospect’s requirements: The final step is to integrate both the customers and sales rep so that higher success is achieved with fewer efforts.
Pre approach:
Pre approach is the activity of salespersons to learn as much as possible about the prospect. This helps in identifying the factors that play an important role in buying decisions making the process. Once a salesperson is familiar with the factors that are important from the point of view of a customer, he can design his approach strategy accordingly. The chances of success increase with the details of the information. Salespersons go to the extent of knowing the time, place, cultural habits and language of their customers. This helps them to step into the customer’s shoe. This activity helps in saving resources and increases the chances of success.
Approach:
The manner in which a salesperson approaches the prospect has a lot of effect on the chances of success of a sales call. As it is said, the first impression is the last impression, the salesperson should know how too great the buyer to get the relationship off to a good start. The dressing, manner, and etiquette, language, politeness and persuasiveness have a lot of effect on the success of a sales call. The right approach comes from the degree of proximity to the customer. Proximity in terms of knowing the customers is very important and nowadays more and more companies are doing the same.
Presentation and Demonstration :
After approaching a customer, the salesperson narrates the story of his product. The underlying scheme of presentation is often based on the AIDA model i.e. gaining attention, generating interest, arousing desire and obtaining action. Different styles of the sales presentation are used, as described herein.
Canned approach: This the oldest approach wherein a sales, person memorizes, the sales talk covering the main points. It is based on stimulus-response thinking i.e. the buyer is passive and can be moved to purchase by the use of the right stimulus wards, pictures, terms, and actions.
Formulated approach: It is also based on stimulus-response thinking but first identifies the buyer’s needs and buying style and then uses a formulated approach to this type of buyer.
Need Satisfaction approach: It starts with a search for the customer’s real needs by encouraging the customer to do must of the talking. The salesperson takes on the role of a knowledgeable business consultant hoping to help the customer save money or make money.
The sales presentations can improve with demonstration aids such as booklets, flip charts, slider, movies, audio, and video cassettes, product samples, and computer-based simulations. Computer-aided presentations are also very useful means. Usually, the presentation is following by leave-behinds such as brochures, leaflets, samples, etc.
Overcoming objections:
There arise objections to all the presentations because of psychological resistance. It is very important to resolve them. In fact, objections are the starting point of communication that might transform into negotiation and finally action. So, they must be encouraged as they can have a positive effect on the sales call if they are resolving.
Theoretically, salesperson presentation should show the prospect that the product requires by him and it should be bought. Very few presentations end that successfully and very few prospects are that easily convinced usually prospect will raise objections. Objections raised by the prospect takes a great deal of skill and training. Experienced sales person welcome objections. The salesperson must be able to identify the real reasons for an objection, respond to the objection, and overcome it.
Objections provide the salesperson with the opportunity to learn more about the customer’s needs and provide information about the product to satisfy those needs. The most difficult prospect is one who does not say anything during the presentation, refuse to buy and gives no reason for the decision. The best way to deal with objections is to avoid them by building answers to common questions into the formal sales presentation.
Closing:
The manner of closing a sales call is as important as the approach. Closing leaves behind an impression, which has a long term, carryover effect. Unconfident salespersons fail to ask for order rendering the entire sales call fruitless. So, the process of winding up of a sales call must incorporate persuasive phrases and actions that not only affect purchase but also help in carrying a long term effect in the mind of the customer.
The closing follows once the objection has been handled. It is at this point that the salesperson should ask for the order. Unfortunately, many salespersons are too reluctant to close: in fact, one study revealed that 50% of salespeople failed to directly ask for the order. The major reason the salespeople are so resistant to close seems to be is fear of rejection.
If salespeople do not ask for an order they cannot be turned down and thereby they avoid embarrassment or disappointment. However, all professional purchasing agents expect sales representatives to attempt a close. Closing the sale is asking the prospect for an order.
The salesperson must be able to recognize the signals that indicate the prospect is ready to close. Successful salespeople learn to time their closing remarks on the basis of signals given by the buyer. These cues can take the form of gestures (Customer nods in agreement, picks up the product and examines it closely) or they can be verbal comments.
Follow up and Maintenance:
Last, steps in Personal selling; In order to ensure repeat business, follow up and maintenance is very important. After closing a sales call, the salesperson should not break contact with the customer. Sustained contact helps in getting business next time. It also helps to enhance customer satisfaction and reducing cognitive dissonance. It also provides feedback to the company for improving the quality of products and service in the future. It’s a must that sales should end in follow up, determine if the order was delivered on time, installation OK, etc. Also helps determine the prospects of future needs.
Accomplishes four objectives:
Customer gain short term satisfaction.
Referrals are stimulating.
In the long run, repurchase.
Prevent cognitive dissonance.
Follow up activities are critical to the success of salespeople and sales managers. Customers expect after-sale service and it is frequently the job of salespeople to make sure these activities are carried out.
As a general rule when an order is not obtained on the initial call the salesperson should express appreciation for the time made available and suggests a later visit. In this way, a salesperson show continued interest in helping the prospect and in getting the order. When leaving a salesperson should inquire if there are any brochures, samples or other information. That the prospects need before they meet again.
Whenever a salesperson leaves without an order they should immediately write down. What they have learned about the prospect. For example; What were prospects chief objections, who makes the decision and what are the prospects primary needs. If the salesperson made any critical mistake during a presentation they should be noted so that they are not repeating in the next visit. Old school, sell and leave!!—Quickly before customer changes her mind!!
Now:
Stay a few minutes after-sale—reinforce, make them feel good, made a wise choice, leave a small gift (with co. name on it!!), call the office at any time, etc.!!
Follow up, reinforce, and know birthdays, new year, etc., friendly correspondence…relationship building!!
Salespeople who do not follow up on sales are unlikely to establish long term relationship with customers or secure repeat business. Purchasing agents expect post-sale service and it is the sales person’s responsibility to see that they remain satisfied.
Personal Selling defines as a hand-to-hand exchange of goods and money or Face-to-face selling in which a seller attempts to persuade a buyer to make a purchase. In the competitive marketplace, the product must be communicated across to the customers. Traditionally, advertising is a tool for communication. However, as the competition has increased, the process of communication has also become more and more complex.
Here are explain Personal Selling; Introduction, Meaning, Definition, and Theory.
Personal selling is one of the forms of promotion or marketing communications used by organizations to communicate with the marketplace and drive purchases of their products. Along with advertising, public relations, and sales promotion – personal selling makes up the promotions mix or marketing communications mix of a company. What is the importance and process of Decision-Making?
#Meaning:
Meaning of Personal selling; Personal selling or salesmanship are synonymous terms; with the only difference being that the former term is of recent origin, while the latter term has been traditionally in usage, in the commercial world. Since a salesman, in persuading a prospect to buy a certain product, follows a personal approach; salesmanship, in the present-day times is often popularly called personal selling.
It is the most traditional method, devised by manufacturers, for the promotion of the sales of their products. Before the development of the advertising technique, it used to be the only method used by manufacturers for the promotion of sales. It is, in fact, the forerunner of advertising and other sales promotion devices.
#Definition:
Personal selling can define as; direct person-to-person communication between sellers and potential customers, to persuade potential customers to purchase products.
According to Philips and Duncan,
“Salesmanship is the art of presenting an offering so that the prospect appreciates the need for it and a mutually satisfactory sale follows.”
They often occur face-to-face, however, they can also take place through telephone conversations, online video conferencing, or online text communication. Also, Personal selling is an effective way to promote and sell high-priced and/or complex products.
This is because the person-to-person approach allows for a detailed explanation of products and any individual questions or concerns the customer has can be immediately addressed.
Personal selling; Introduction, Meaning, Definition, and Theory. Russia cotton Candy Hands #Pixabay.
#Introduction, How to Sale?
Introduction to Personal selling; The marketers of today cannot rely on only advertising the marketing communication mix comprises 5 modes of communication as explained herein;
Advertising: Any paid form of non-personal presentation and promotion of ideas, goods, or services by an identified sponsor.
Sales promotion: A variety of short-term incentives to encourage the trial or purchase of a product or service.
Public relations and publicity: A variety of programs designed to promote or protect a company’s image or its products.
Personal selling: Face-to-face interaction with one or more prospective purchasers to make presentations, answer questions, and procure orders.
Direct marketing: Use of mail, telephone, fax, e-mail or internet to communicate directly with or solicit & a direct response from specific customers and prospects.
The present article deals with personal selling as one of the modes for selling. The topic falls within the scope of both marketing communication and sales management. It is the most effective tool, especially in the later stages of the buying process. It is very useful in building buyer preference, convictions, and action.
Distinctive qualities:
Personal selling has three distinctive qualities;
Personal confrontations: They involve an immediate and interactive relationship between two or more persons each party can observe the other’s reactions at close hand.
Cultivation: It permits all kinds of relationships to spring up, ranging from matter-of-fact selling relationships to deep personal friendships. Also, Sales representatives usually have the customer’s best interests at heart.
Response: It makes the buyer feel under some obligation for having listened to the sales talk.
Theory of Personal selling:
Personal selling is more of an art. Often effective salespersons have an instinct. Yet, it is realizing that proper training can enhance the skills of good salesmen. In present times, it is becoming more and more customer-oriented because no more do are have a buyer’s market.
Theory of Personal selling – List
Three major aspects of personal selling are;
Professionalism.
Negotiations, and.
Relationship marketing.
Now, explain each;
Professionalism:
The belief that good sales are born is giving way to a professional approach to sales activity. As well as, the sales managers realize the importance of training the sales force and spend huge sums of money each year for the same. We find the market flooded with training aids comprising books, video and audio cassettes, CDs, and many more.
Also, The aim of sharpening the skills of a salesman is to make him more and more effective. All sales training approaches try to convert a salesperson from a passive order taker into an order setter. An order taker is passive and stands dominated by the situation. In order Getter molds the situation in his favor and takes charge to achieve his objectives. What is the IT Professionalism in Information Technology Essay? Also, The modern professional approach to salesmanship stands customer-oriented.
The act of selling stands projected as aimed at solving the problems of the customers. Such an approach is satisfying the customers more thereby making sales activity more and more effective. Furthermore, the sales personnel are trained to understand the situation and they formulate their reaction because no single approach works in all situations.
Negotiation:
Negotiation skills are one of the most important skills of a salesman. Likewise, The two parties need to reach an agreement on price and other terms of sales. A good salesman wins the order without making deep .concessions that will hurt his profitability.
Also, he must not unduly extract the customer because such an approach will be detrimental in the long run. This process of exchange by way of negotiation is more of an art. Learned by a salesman over time. The professional approach to negotiation identifies the zone of agreement between the seller’s surplus and the buyer’s surplus.
Such an understanding helps in reaching the agreement point where both parties feel satisfied. Negotiation involves communication that is Focused and planning. Also, A good salesman understands his customer well and then formulates a negotiation strategy.
Relationship marketing:
As the salesman becomes close to the customers, the Transactional nature of the selling approach gives way to the relationship approach. Furthermore, the Transactional approach is deal to deal approach centered on short-term gains. Also, The relationship approach is long-term and establishes a relationship between the buyer and the seller.
Both understand each other and support each other. Sales managers have to realize that it is far easier to get sales from an old customer as compared to getting the same from a new customer. So, it is important to retain existing customers. As well as, Personal selling is the most effective method of building relationships.
No other means can establish relationships as effectively as personal selling does. So modern salesmen work with a long-term perspective, establishing close customer associations. Such a practice is most evident in banking, airlines, insurance, and investment industries.
