Getting Competitive Advantage with Market-Based Pricing

Explore the role of competition in business. In such a context, market-based pricing presents the utmost importance in gaining a competitive advantage and ensuring a company stays afloat during hard times.

Market-based pricing, also known as competitive pricing, is a strategy that uses smart pricing approaches to turn pricing into an instrument granting competitive advantage. With the introduction of innovative tools, the method has become as effective as ever before. The power of Artificial Intelligence (AI) and Machine Learning (ML) coupled with pricing offers an opportunity to boost revenues and follow objectives retailers set for their companies. Here, we’d explore the phenomenon of market-based pricing in detail and from different perspectives. 

The definition of market-based pricing

In short, market-based pricing is the method used to price products while considering competitors’ prices and other data available on the market. The strategy can be extremely beneficial when applied properly and in the right conditions. Competitive and timely pricing is something that many companies can use for their benefit. 

Businesses can offer higher or lower prices depending on what type of market-based pricing they pursue. The approach’s core is to use market variables to determine the best pricing strategies. Such a method can be extremely important in times of market turbulence. For example, the devastating economic recession resulting from the COVID-19 pandemic made the competition even more fierce. As a result, this is when market-based pricing strategy is relevant as never before.

Calculating market-based pricing strategy

How do you build an effective market-based pricing strategy? Many wonders what aspects to consider when making the phenomenon effective. Essentially, the calculation of market-based pricing relies on several key factors. When taking those elements together, one can receive a decent result. Besides, the calculation can be most efficiently done with tools like price scraping software.

To calculate market-based pricing, one should have three key elements – the cost of a product, market factor price, and premium factor. You should sum up all the three elements together and get the results to get the price. The formula for market-based pricing calculation looks as follows:

Price = Premium Factor + Cost of Product + Market Factor Price

Following the formula, one can easily calculate the market-based pricing and determine the further direction of the strategy. 

Where to start with market-based pricing?

Competitive and timely pricing can be a game-changer. The selection of a proper pricing strategy depends on a variety of factors. Companies need to consider retailer type, market, industry, and many other factors. Nonetheless, in retail, companies with different ranges of their product portfolios need to price the selected products while accounting for competitors pricing the same products. Essentially, to make market-based pricing going, it is crucial to consider the following starting points:

  • The first point is about relevant sales and competitive data. One should have sufficient information on the history of sales and competition.
  • The second point is to create a checklist of all the given variables a company needs to consider in pricing.
  • The third point is to have aspects like promotion, stock clearance attributes, and Google Analytics data.

One of the best ways of revealing the true capacity of market-based pricing is to take into account the missions of particular SKUs in the product portfolio. 

What about pricing KVIs?

Pricing KVIs are low-margin and high-velocity products in any given range of assortment. These are one of the most important aspects of the company’s product portfolio. The significance of KVIs correlates to the fact that they push forward the price value perception compared to any other groups of products. Often, consumers compare the prices on selected KVIs within the market and try to locate the ones with the best price. It shows that even if most of your products have a more attractive price and KVIs don’t, consumers can pass your company by.

The rule of thumb dictates that the essence of an effective market-oriented strategy is based on the effective pricing of KVIs. It is something companies cannot merely avoid. Market-based pricing directly depends on a good market-based approach. When it comes to keeping customers loyal and attracting new consumers, retailers need to manage and monitor the way in which competitors price various products while further adjusting their prices accordingly. In such a case, one of the risks of market-based pricing is that constant lowering of prices on both sides can lead to price wars flowing to the bottom, a situation in which everyone will be at a loss. 

Checks and balances in market-based pricing

Keeping in mind the insights mentioned above, one should appeal to the instruments helping control the risks to avoid price wars and keep market-based pricing at bay. One of the primary solutions is the issue of tracking the competitors. The problem arises from the fact that there can be too many of them, and a company might lose its grip when following teh rivals. Besides, it is vital to follow the competitors that impact your prices. Otherwise, all the analysis you do is futile. 

Let’s look more into instruments that can help keep market-based pricing effective. There is advanced software available. It works using Machine Learning algorithms, one of the most innovative aspects that people can get on the market. With the power of such algorithms, one can automate the process of market-based pricing and all its aspects like data collection, analysis, and synthesis. With the help of the tool, one can control the risks of going with the strategy too far.

When it comes to showing how sophisticated algorithms can be used in practice, one can speak about price scrapping tools. It is the instrument that can implement smart pricing seamlessly. A person only needs to insert variables and rip the benefits. 

Concluding remarks

Market-based pricing can bring massive benefits to retailers. It works through important data obtained from competitors. However, to have the most from the approach, one should control any given risks. It can be achieved through advanced software that utilizes Machine Learning and Artificial Intelligence. Use market-based pricing for your benefit, and remember to keep checks and balances. 

Dharmesh is Co-Founder of TechnoFizi and a passionate blogger. He loves new Gadgets and Tools. He generally covers Tech Tricks, Gadget Reviews etc in his posts. Beside this, He also work as a SEO Analyst at TechnoFizi Solutions.


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