Benefits and Challenges of a Competitive Pricing Analysis

April 14, 2022

When it comes to pricing your products, you need to make sure you are doing a competitive pricing analysis. This is especially important if you are selling products online. By doing a competitive pricing analysis, you can see how your prices compare to other sellers in the market. This will help you determine if your prices are too high or too low. It will also give you an idea of what features and benefits customers value most when they are looking for products like yours.

What is Competitive Pricing Analysis?

Competitive pricing analysis entails researching how competitors are pricing and selling their products.

While pricing strategies are used across all industries, they are particularly common in high sales environments, where the same products are sold.

Retail businesses often offer competitive prices, especially on their websites as their prices can frequently change.

As part of your pricing strategy, a competitive analysis can help you understand how to price yourself against the competition. This type of analysis looks at factors such as what the competition is charging, how their prices compare to yours, and how this affects your marketing strategy. Ultimately, understanding the competitive landscape can help you make pricing decisions that will boost your sales.

Pricing a product can be a challenge for any business. In this guide, we’ll show you how you can use competitive pricing analysis to beat out the competition.

There are a lot of factors that go into determining the best price for your product. You want to get the price just right so you can stay competitive, but still make a profit.

If you price it way above the market average, you may lose customers. But if you charge too little, your profit margins will suffer.

One common practice is for businesses to use competitive prices.

Price your offerings based on your competitors is a good starting point, but make sure you’re still offering something that stands out.

For retailers, it is important to offer competitive pricing. This is because all stores are trying to sell the same products.

While competitive pricing is essential, it also requires a lot of market research and a lot of time.

Benefits of Competitive Pricing Analysis

Pricing policies should be based on more than just price. Competitive market analysis should also be included.

There are many benefits to using competitive pricing analysis, all of which can help you make better decisions when it comes to setting and raising prices.

Here are a few:

1. Avoid Profit Loss

No matter how you approach the market, you can’t compete if you don’t know what your competitors are doing.

If you’re looking to sell yourself as a premium product, it’s crucial that you compare your prices to the competition and set them accordingly. But the biggest risk of underpricing a product is the potential loss of profit.

2. Grow Your Market Share

Knowing your pricing structure and where it places you against the market is essential for increasing market share.

By looking at the prices that other businesses offer, you can gain an idea of where you can find opportunities where you can lower your price and grow your share of the market.

Retailers are particularly fond of this tactic.

Sometimes referred to as a ‘loss leader,’ a company might look to increase its overall market share by reducing the costs of low-value items.

3. Monitor Your Market Position

Your pricing should always be dynamic. As market conditions change, so should your pricing structure.

By looking at your competitors’ prices over time, you can get a good idea of what you should charge.

Staying competitive means keeping an eye on your rivals’ prices and adjusting yours accordingly. If a competitor changes theirs, you can seize the opportunity to undercut them.

If you want to stay ahead of the competition, it’s important to regularly analyze their pricing. This way, you can adjust your own prices accordingly and maintain a strategic advantage.

4. Take Advantage of the Competition

If you understand your competitors’ pricing, you could test your own prices and find a sweet spot that you can take advantage of.

If your product is similar to a competitor’s but yours has additional features, you may want to adjust your marketing to reflect that.

A side-by-side comparison of your prices can easily highlight the advantages your offer has over your competitors, effectively justifying a price hike.

On the flip side, if you can leverage your buying power and produce goods at a lower cost, you can price yourself lower than your competitors and generate more sales.

5. Improve Your Pricing Position

By conducting a competitive price analysis of your industry, you reduce the likelihood of customers going to your competitors by making sure your prices stay in line with the market.

Luxury brands are more expensive because their customers are typically wealthy. These companies have long-standing reputations, such as Rolex. However, failing to understand why competitors are raising their prices could lead customers to perceive them as “the cheaper option”.

Challenges of Competitive Pricing Analysis

While price can be a useful tool for marketing and sales, it also comes with a fair share of challenges.

Understanding your competitor’s pricing strategy is essential to creating a competitive marketing strategy. This may require extensive research, but it is necessary to identify opportunities that competitors may be missing.

Here are some challenges that you may encounter when doing competitive research.

1. Errors in Pricing Analysis

Trying to do your own price analysis or using a tool that’s not accurate can result in you getting the wrong information.

Conducting market research on your competition can be extremely time-consuming and labor-intensive, and you have to keep in mind that their prices can fluctuate.

If you’re not careful, it’s easy to end up with inaccurate price comparisons when you’re only checking infrequently. This is especially common in retail, where prices can change daily due to promotions and sales.

2. Finding Comparable Products

When trying to match a competitor’s pricing, it’s important to compare the two products/services on equal terms. If there are other factors to consider, such as additional features or benefits, your competitor may have a better product.

3. Understanding In-Store and E-Commerce Pricing

With more companies offering their products and/or services through the internet, your price comparisons need to account for not just your prices compared to your physical store, but also how your prices are different between your online store and your physical location.

The problem with using pricing data from competitors is that it’s still a manual process that takes a lot of time. This is especially problematic when prices change frequently, and many companies only sell their products through online stores.

Your competition’s pricing structure must be analyzed across every possible channel.

4. Taking a Short-Term Approach to Pricing Strategy

Most businesses take a short-term approach to pricing strategy, which can be damaging to their market share. A long-term approach is always best when it comes to pricing. This will ensure that you can maintain a healthy market share.

Instead of looking at the entire competitive environment, many companies use price changes for individual products to impact their competition. This can reduce the overall value of your products.

How to Conduct a Competitive Pricing Analysis

Looking at what your competitors are doing can help you figure out what kind of pricing structure you should adopt, but some of the data you collect might make you rethink your approach.

Here are the key components of competitive pricing analysis.

1. Find Your Direct and Indirect Competitors

In this stage of the process, you research your direct and indirect competitors to gain an understanding of how they price and position their products. This will help you understand how they market and what their pricing strategy is.

Also, consider local competitors who could take business away from you.

Direct competition is when you and another company are in the same industry, while indirect is when you and a company are not in the same field, but their products can compete.

competitive pricing analysis (Source)

2. Research Their Value Proposition

Your competitors’ pricing should be examined so you understand if you’re competing with them on just cost.

Take a look at your top competitors’ marketing collateral.

Are they competing for the same customers? Or is there something about their value proposition that helps them price their products or services?

You must research your competition’s pricing structure before establishing your own. That way, you can ensure that your prices are based on the same playing field as everyone else.

3. Analyze and Compare Prices

Now that you’ve determined which of your products have unique value propositions, you should look at the prices your competitors are charging for the same products.

Don’t just look at the stock price, but look at historical trends to get a better sense of the company’s long-term price movements. This should give you a better overall picture of the stock.

Do they lower prices often, and if so, why? This could be due to seasonal changes or promotions that impact their pricing strategy.

Understanding your market’s price sensitivity will help you set a long-term pricing structure that will ensure you’re always offering a competitive rate.


Competitive pricing analysis is an important tool for any business owner. By doing a competitive analysis, you can see how your prices compare to other sellers in the market. This will help you determine if your prices are too high or too low. It will also give you an idea of what features and benefits customers value most when they are looking for products like yours.

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