In discussions with clients or prospective clients, we are often asked if our work is driven from monitoring competitor prices. In our view, an understanding of competitor pricing strategies and competitor behaviors is a helpful piece of the puzzle, but it is far from a complete answer. Competitive analysis is information that supplements insights from your own data and understanding of your strengths and weaknesses, and it contributes to an understanding of how you can compete and win in your chosen markets. However competitive analysis and competitor price monitoring are not strategies.
Customers decide what to buy and where to buy based on a number of factors, only one of which is price. I was reminded of this on a recent trip to Florida during which I observed a wide range of gas prices at service stations within a small area. In fact the highest price I observed was 30% higher than the lowest price and 9% higher than the median. And in spite of those price differences it appeared that all of the service stations were busy. So matching prices would not have helped the high-priced guys.
Price monitoring software and services are widely available today, particularly for retailers. The tools are sophisticated and enable the users to track a wide variety of competitors and products. The theory behind the tools is many customers use the internet to compare prices, and if your prices are too high, you will lose sales. But even with that price transparency, customers are not buying solely on price. If they were buying only on price, higher-priced retailers and the Florida gas station with the 30% premium would quickly go out of business.
There was a recent post on LinkedIn, Digital Dynamic Pricing – “Dark Side of the Force”?, in which the author argues that following competitor pricing with automated tools is a zero sum game and lowers overall profitability. If all retailers can instantly or quickly match competitor price moves, there is no advantage to be gained by lowering prices. It quickly becomes a race to the bottom. In addition, the author points out that most companies do not actually measure whether the price moves have an impact on demand. And when they do measure the impact, the results can very often be random variation rather than price-driven variation.
There is no doubt that customers use tools to help learn the prices retailers are charging. But prices are only part of the buying decision for customers. There are other factors that are usually more important to them, for example:
- How well the product or service meets their needs, which often includes the ability to see and touch the product before buying
- The level of service provided by the vendor or retailer
- The ease or convenience of purchasing, or even the desire to support local businesses
- Loyalty programs that create incentives for repeat business
Consumers may check the price of something online while they are physically in a store, but then pay more than the online price because they can get the product instantly in the store. If a store tries to compete by matching low prices of all competitors, many of their sales will almost certainly be to customers who would have paid more – either because they were not comparing prices or they valued the instant transaction more.
In the B2B space, competitive intelligence is a little more difficult. There are tools available to monitor the published prices of competitors, but many B2B transactions are at lower, negotiated prices. Those negotiated prices are not available through automated searches. So a complete picture of competitor strategies needs to include how they communicate their value proposition, how their sales efforts are organized around customers, how often and in which situations you win and lose against them, and whether they tend to lead or follow the market.
We are not advocating ignoring competitor pricing or competitor activities. On the contrary, we think competitive intelligence is an important piece of the puzzle. However, strategy is fundamentally a set of choices about where your firm will compete and how it will win. Unless you are trying to win on price, which is impossible unless you have a sustainable cost advantage, there must be other components in your process of delivering value to customers. Your pricing strategy should reflect those other components of value. There are limits to how much your prices can differ from competitors, so paying attention to how your competitors compete in total and using your data to inform how your customers respond to price differences can lead to much more profitable pricing strategies.
Thanks for sharing information about the great content, found some new interesting tips.
Competitor price tracking is a strategy that set the best plan as per the competition in the market. It usually is used in a very competitive market, where the number of rivals is quite large, and competitiveness among them is based basically on the product price. Thank you so much. This was brilliant If you are interested to know more about BI, we also have some information.