Read Time: 6 minutes

6 Pros and Cons About Competitor Based Pricing

Mike Slavin< Mike Slavin January 12, 2021

It’s something everyone who’s been involved in pricing and selling just about anything has always thought about: “If I only knew what my competitor was charging . . .”  Competitor price information:  the Holy Grail of pricing, because it means “…I could set my prices to win as much business as I wanted and never leave any money on the table.” 

Not too many years ago, it was almost impossible to find prices for non-consumer, B2B products on the web.  Not any more.  With the proliferation of marketplaces like Alibaba and Amazon, and with just about every distributor and most manufacturers providing product pricing information on their websites, there are mountains of tempting price data available.  

To mine those data mountains, there are currently dozens of state-of-the-art web scraping software tools on the market.  So why not jump in to this pricing strategy with both feet?  Let’s look at some pros and cons of competitor based pricing, starting with the pros:

1. You can simplify your pricing approach

If you’re not sure where to set your prices you can use competitor prices as a benchmark starting point. “I’m going to take the average of my competitors’ prices and multiply by 0.98 so I’m always 2% under the market.” You could apply price management logic to automatically adjust your prices as market prices change. Another advantage to think about is that you’ll be using a pricing strategy that just about all sales people will understand.

2. Your pricing should be reasonably accurate

If you’re a small fry and you’re harvesting prices from big fish competitors you can assume you’re prices will be reasonably close to the market. You’ll have much less risk of issuing a low-ball price that leaves money on the table.

3. Your pricing will be as accurate as your competitors’ pricing

But by hitching your horse to your competitor’s pricing wagon you’re assuming they know what they’re doing. Just because a competitor is bigger doesn’t mean they’re sophisticated price managers. There are still a surprising number of multi-billion-dollar companies managing their pricing with spreadsheet tools.

What are some of the cons of relying too much on competitor based pricing?

4. You can’t know what customers are really paying

No one pays more than ‘factory invoice’ for a car these days. Does that mean the dealers aren’t making any money? Most B2B businesses provide their best if not all customers with off-invoice incentives that don’t show up in their quoted pricing. Does anyone pay that web price you’re scraping?

5. You’ll be conceding the market to your competitors

Do you want to be an industry leader or a follower of your competition? Do your competitors’ business strategies align with yours? If they make a wrong turn or do something unreasonable with their pricing do you want to blindly follow them off a cliff?

6. Your pricing won’t necessarily reflect customer willingness to pay

Why do you win business? Is it strictly based on price or do your customers recognize that you provide more value than your competition? Most customers are willing to accept a higher price if they feel they’re getting more value for their money. Do competitor prices reflect the value you provide to your customers? Some products are much more price-sensitive than others. Have your competitors figured that out?

Not the Holy Grail, but another sharp arrow in the quiver?

There truly is plenty of potential value from harvesting readily available competitor price data.  But the downside of going all-in on a competition-based pricing strategy far outweighs the potential benefits. Competitor price data should be used to complement your existing pricing strategies, not replace them.

When loaded into an analytical tool like Vendavo’s purpose-built Profit Analyzer, competitor price data can be a great indicator of the direction your markets are going. It can also be used as a solid data point for analyzing your pricing and tempering your pricing strategies.

The journey to pricing excellence is a marathon, not a sprint. Leveraging competitor price data can help you get closer to the lead.