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Competitive Pricing Competitive pricing is a pricing method in which a company sets the price of a product or service exactly as their competitors. This type of pricing mostly occurs when businesses within a specific market sell similar products from one and other, and have been in the market for a long period of time. The market leader at that particular time will set the price of their product, and their competitors will have no choice but to follow the change exactly or set their price within close range. Businesses may have similar products, but their features may enhance one product ahead of another. Like any other business, they are all trying to implement a strategy that maximizes their profit. However, knowing your target market and potential customers are vital in order to introduce the best pricing strategy. .

Competitive Pricing Advantages
A businesses aim is to increase profit by increasing sales and decreasing production cost. Applying competitive pricing will lead to a benefit of preventing price competition, in other words following the market leaders price change or staying within the same range as most other competitors. For example, a firm may want to decrease the price for their product like their competitors, in order to gain back some interest from customers. Competitive pricing makes different suppliers more approachable to their specific product, since the price is already within the same range the particular supplier already operates. Also, this strategy allows companies to select between setting their prices above, below, or on the same level as their competitors’ prices. .Therefore, this will effect the customer’s perception towards their product. For example, if a company sets their price above their competitors, the higher price will give out an image implying the company has a better product than the other.

Competitive Pricing Disadvantages
A major disadvantage for a firm that applies a competitive pricing strategy is because they are not pricing their good or service related to the value delivered to customers and their cost. The firm may have to find other ways to gain back the interest of their customers. The price may hardly cover the production cost, resulting in a decrease in revenue. Another disadvantage when applying this pricing method is that other competitors can easily follow and copy the same price set. This happen extremely often, as whenever a larger company who has more control of the market changes their price, smaller companies selling similar products will do the same. Additionally, frequent researching of the particular market is essential when conduction competitive pricing. New competitors may enter the market, and some may exit as well. Some competitors may implement different strategies than others, therefore it is vital to know what changes occur within the market. .

Using Competitive Pricing
Most companies’ use their competitors price in order set their own, especially when there is a market with many small firms and few dominant or larger firms. The larger firms act as leaders since they are the first to change the price in the market, and the smaller firms act as followers as they adjust according to the competitors. There are various stages companies go through when using competitive pricing. Firstly, a company implementing this strategy will identify the competitors within the same market and compare the products sold to their own. Secondly, the company will set their price higher, lower, or exactly the same as their competitors based on the advantages and disadvantages of their products compared to their competitors. A company that keeps their price lower than their competitors wants to increase their sales, leading to more market share. Market leaders will have the highest price in the market as they have a better product overall, and they want to present their products image and brand. The final step to consider when apply this strategy, is the response of the competitors within the same market. In a market with few competitors, if a price is lowered, other companies are most likely to follow the initial competitors. .