Advantages and Disadvantages of Competition Based Pricing
Looking for advantages and disadvantages of Competition Based Pricing?
We have collected some solid points that will help you understand the pros and cons of Competition Based Pricing in detail.
But first, let’s understand the topic:
What is Competition Based Pricing?
Competition Based Pricing is when a business decides the price of its product or service based on what its rivals are charging. It’s like matching or beating your competitor’s price to attract more customers.
What are the advantages and disadvantages of Competition Based Pricing
The followings are the advantages and disadvantages of Competition Based Pricing:
| Advantages | Disadvantages |
|---|---|
| Matches market expectations | Ignores company costs |
| Encourages competitive pricing | Can lead to price wars |
| Simplifies decision-making process | Overlooks product quality |
| Reduces pricing risks | May alienate customers |
| Promotes business sustainability | Neglects brand value |
Advantages of Competition Based Pricing
- Matches market expectations – Competition Based Pricing allows businesses to set prices that align with what customers expect to pay, creating a balance between demand and supply.
- Encourages competitive pricing – It fosters a competitive environment among businesses, pushing them to offer the best price possible to attract customers.
- Simplifies decision-making process – This strategy simplifies the pricing decision-making process as it’s based on what competitors are charging, reducing the need for complex calculations.
- Reduces pricing risks – It also minimizes the risk of setting prices too high or too low, as it’s based on established market rates.
- Promotes business sustainability – Furthermore, it aids in business sustainability by ensuring prices are realistic and competitive, promoting long-term survival and growth.
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Disadvantages of Competition Based Pricing
- Ignores company costs – Competition based pricing often overlooks the costs a company incurs, which can lead to financial losses if prices are set too low.
- Can lead to price wars – It can also spark price wars among competitors. This is when businesses continuously lower their prices to outdo each other, which can harm profitability.
- Overlooks product quality – This strategy tends to ignore the quality of the product. That means, businesses might focus more on matching or beating competitor prices rather than improving their product.
- May alienate customers – It might upset customers, especially if they perceive the constant price changes as unpredictable or unfair.
- Neglects brand value – Lastly, it often neglects the brand value. Businesses might undervalue their products, undermining the brand’s perceived worth and damaging its reputation.
That’s it.
Also see:
- Advantages and disadvantages of Competition
- Advantages and disadvantages of Competency Mapping
- Advantages and disadvantages of Competency Based Training
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