competitive-based pricing

(noun)

Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.

Examples of competitive-based pricing in the following topics:

  • Competition-Based Pricing

    • Competitive-based pricing occurs when a company sets a price for its good based on what competitors are selling a similar product for.
    • Competitive-based pricing, or market-oriented pricing, involves setting a price based upon analysis and research compiled from the target market .
    • With competition pricing, a firm will base what they charge on what other firms are charging.
    • One advantage of competitive-based pricing is that it avoids price competition that can damage the company.
    • Status-quo pricing, also known as competition pricing, involves maintaining existing prices or basing prices on what other firms are charging.

  • Competitor-Based Pricing

    • Competition-based pricing describes a situation where a firm has a pricing policy that reflects the pricing decisions of competitors.
    • Competition-based pricing describes the situation where a firm does not have a pricing policy that relates to its product, but reflects the pricing decisions of competitors.
    • Similar to competition based pricing, going rate pricing reflects the price that is being used by most of the companies within the industry, an industry standard more or less.
    • The problems with competition-based pricing are that:
    • Competitor-based pricing is purely reactive.

  • Price Competition

    • With competition pricing, a firm will base what they charge on what other firms are charging.
    • In general, a business can price itself to match its competition, price higher, or price lower.
    • The keys to implementing a strategy of meeting competitive prices are an accurate definition of competition and a knowledge of competitor's prices.
    • Banks shop with competitive banks every day to check their prices.
    • Another possible drawback when pricing below competition is the company's inability to raise price or image.

  • Demand Curve

    • The demand curve of a monopolistic competitive market slopes downward.
    • In this type of market, these firms have a limited ability to dictate the price of its products; a firm is a price setter not a price taker (at least to some degree).
    • The source of the market power is that there are comparatively fewer competitors than in a competitive market, so businesses focus on product differentiation, or differences unrelated to price.
    • As a result, a business that works on its branding can increase its prices without risking its consumer base.
    • Due to how products are priced in this market, consumer surplus decreases below the pareto optimal levels you would find in a perfectly competitive market, at least in the short run.

  • Cost-Based Pricing

    • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
    • Cost-based pricing is the act of pricing based on what it costs a company to make a product.
    • Cost-based pricing involves setting a price such that:
    • Activity-based pricing is better than regular cost-based pricing in such situations.
    • Describe cost based pricing as it relates to general pricing strategies

  • Demand-Based Pricing

    • Demand-based pricing is any pricing method that uses consumer demand - based on perceived value - as the central element.
    • Demand-based pricing, also known as customer-based pricing, is any pricing method that uses consumer demand - based on perceived value - as the central element.
    • Pricing factors are manufacturing cost, market place, competition, market condition, and quality of the product.
    • It allows the firm to recover its sunk costs quickly before competition steps in and lowers the market price.
    • By definition, long term prices based on value-based pricing are always higher or equal to the prices derived from cost-based pricing.

  • Other Pricing Strategies

    • A flexible pricing mechanism made possible by advances in information technology, and employed mostly by Internet based companies.
    • Non-price competition means that organizations use strategies other than price to attract customers.
    • Business people prefer to use non-price competition rather than price competition, because it is more difficult to match non-price characteristics.
    • Pricing above competition generally requires a clear advantage on some non-price element of the marketing mix.
    • While some firms are positioned to price above competition, others wish to carve out a market niche by pricing below competitors.

  • Other Inputs to Pricing Decisions

    • Under this strategy, a company sets a price based upon analysis and research compiled from its target market.
    • EVC is based on the insight that a customer will buy a product only if its value to them outweighs the value of the closest alternative.
    • In other words, a company can utilize its competitive advantage to implement a pricing strategy that will maximize its profits.
    • Competitive advantage is defined as the strategic advantage one business entity has over its rival entities within its competitive industry.
    • This suggests that the differentiation value relative to the closest competitive offering is $6,000.

  • Elasticity Conditions for Price Discrimination

    • In a competitive market, price discrimination occurs when identical goods and services are sold at different prices by the same provider.
    • In a competitive market, price discrimination occurs when identical goods and services are sold at different prices by the same provider.
    • The prices of each ticket can also vary based on the day and chosen show time.
    • Discounts based on occupation: many businesses offer reduced prices to active military members.
    • Customers must search for the best priced ticket based on their needs.

  • Efficiency of Monopolistic Competition

    • In these types of markets, the price that will maximize their profit is set where the profit maximizing production level falls on the demand curve.This price exceeds the firm's marginal costs and is higher than what the firm would charge if the market was perfectly competitive.
    • Consumers will have to pay a higher price than they would in a perfectly competitive market, leading to a significant decline in consumer surplus; and
    • In a monopolistic competitive market, firms always set the price greater than their marginal costs, which means the market can never be productively efficient.
    • Again, since a good's price in a monopolistic competitive market always exceeds its marginal cost, the market can never be allocatively efficient.
    • The price is determined based on where the quantity falls on the demand curve, or the red line.