Competitors provide insight into the market, pricing and inventory. Newer entities, and companies that are trying to compete against new market players, can gather valuable data to better price their products.
Competition-based pricing is used in e-commerce, SaaS and virtually any form of retail.
What is Competitor-Based Pricing?
Businesses must survive by making sales. When consumers have options and the products are the same, they’ll most often focus on price. For example, let’s assume that you’re selling a 45” LCD television and your competitor is selling the same exact brand, size and model.
If you both offer great shipping and have impeccable reviews, price is what will matter most.
Amazon is a good example of how price impacts the market. Due to the company’s large size, they’ve been able to offer goods at lower prices than the competition and gobble up market share.
When you use competition-based pricing, you’re using a strategy that:
- Gathers multiple competitor prices
- Aligns your prices with what consumers are willing to pay
Aligning your pricing with the competition does a few things: maximizes sales, helps reduce overstock inventories and allows you to remain profitable.
If you opt to sell your goods or services at a higher price and they’re of the same quality, you’re not going to be able to survive very long as a business.
Competitor pricing has to be close and not always the same exact price as the competitor. If a competitor sells a product for $20, you can choose to sell it for $19 or $21. Just know that there’s a threshold which consumers are unwilling to cross.
Also, if goods are priced too low, you might not be able to maintain healthy profit margins. Always keep a close eye on your profit margins to ensure that selling certain goods is profitable.
How Competitor Data is Collected and Utilized
We always start gathering competitor data with a strategy. The steps you take may be different, and data collection may vary. We make extensive use of data scraping, using reliable methods that don’t impact competitors or the sites we crawl in any way.
You can also gather data manually, but over time, this manual gathering will grow in complexity and time demands.
Steps that must be followed include:
- Identification. Who are your competitors? You need to keep a pulse on the industry and identify who your competitors are today, months and years from now. You’ll have to perform this market research, and chances are, you already have some of this data available. Pick companies that are similar to yours and your company profile.
- Research pricing. You want to gather the pricing and trends of all your competitors and the products they sell that are the same as yours. Try and determine trends in their pricing and collect pricing in a database.
- Average pricing. The next step is to calculate the average prices of your competitors. Use this information as a benchmark that allows you to know how to price your products. You can price goods at the average price, or you can choose to underbid the competition. If you sell goods too cheaply, you must be sure that you’re maintaining healthy profit margins.
You can match pricing to align it with your competitors, or you can price it higher. Gucci and other fashion brands, for example, have been able to price their goods higher and are perceived as “luxury” brands.
Pros and Cons of Competition-Based Pricing
We’ve been able to produce great results when scraping pricing data for our clients, as you’ll see in the next section of this article. There are multiple advantages and disadvantages to this method of determining pricing.
Pros
Easy to Implement
Implementing this strategic approach to pricing is easy if you have experience. We’re well-versed in building data scraping solutions, so we’re able to deploy solutions rapidly for our clients.
If you’re not using an automated service, the process is still possible with manual collection.
You should be collecting information about your competitors and conducting market research already.
Low Risks
Businesses are all about risk management. It’s important to manage your risks to keep sales flowing with a lower risk of inventory overstock or understocking. Surprising customers with your pricing can push consumers away.
When you price your goods or services properly, you reduce your risk of failure and increase your chance of success.
Future Changes Captured Rapidly
Are your competitors running massive sales? Is the market changing rapidly? Are you one of the only stores with product still in stock? You can use data scraping to continually or periodically check on product prices so that you can:
- Adjust prices without guesswork
- Maintain healthy sales
- Continue competing with others in your industry
If you’re changing your prices based on trends, you should be able to keep your inventory levels at a healthy rate and capture more market share.
Cons
Lack of Market Factor Insight
If you’re only relying on the pricing data that’s scraped, you’re going to miss the market factor insight you have to make smart decisions. Prices may be going up or down due to demands and trends, and you need to know of these demands to make sure that you’re not losing money.
Let’s assume that your main competitor is going out of business, so they have slashed prices by 50% to liquidate their goods.
Lowering your prices could lead to a significant loss in revenue. If there is one competitor that is slashing prices, manual checks should be performed to better understand consumer behavior.
Our Work on FMCG as an Example of a Successful Data-driven Approach
We’ve used data-driven approaches with great success while working with FMCG. The company has a lot of data available – all retail companies do. Oftentimes, there’s too much data to control at first.
Web scraping allows businesses to find cheaper, optimized tactics that save them money and help them generate more revenue.
FMCG, a beauty and cosmetic retailer, asked us to assist them with overstocking and understocking issues that were causing the company to lose money.
Our approach included:
- On-site market research
- Monitoring competitor product availability
We were able to determine how many products were available at competitors’ websites by creating a specialized web scraping solution. Daily we were able to analyze how many products competitors had in stock.
Our team built out a dashboard to track all changes in real-time. The data was easily exportable and could be viewed at any time by the client.
Gathering this data daily, we were able to:
- Know which products were sold successfully
- Learn how price drops impacted sales
- Understand the “sweet spot” where products sell the best
At the end of the process, we were able to gather enough data to allow our client to increase their profits by 47% in 4 months.
This is the same techniques that you can use to boost sales, reduce overstocking and unload inventory that has been sitting in warehouses for months. Data allowed our client to price their products to sell rapidly.
When you’re able to use data in a way that makes sense, it allows you to remain competitive, build infrastructure to compete against competitors and improve financials. Accurately predicting product demand saves money and increases revenue.
FMCG is now able to predict, with 85% accuracy, the demand for their products.
Optimizing Pricing to Boost Sales
Price optimization keeps you from spending too much money on inventory that may sit in a warehouse for long periods of time. Proper pricing, when demand is healthy, allows inventory levels to remain sufficient so that you’re not losing sales and also don’t have too much money tied up in inventory that’s not selling.
If you opt to use data scraping alongside competitor-based pricing, you’ll maintain an advantage over your competitors and can achieve benefits similar to FMCG.
