Competitive pricing

Competitive pricing means charging a price that is similar to the prices your competitors charge. The price is set in line with the market: you check what rivals charge and price close to that, rather than picking a number at random.

How it works

You can slightly undercut rivals by charging a little less, or charge slightly more if you are a market leader (the biggest seller in the market) with a strong reputation. Either way, the starting point is competitors' prices. Competitive pricing does not mean you must be the cheapest — a business charging a little more than rivals is still using it, as long as its price sits in line with the market.

For example, a new skate shop sees that other shops in town sell a complete skateboard for around £70. It charges £68: a little below the going rate, but still a price customers recognise as normal.

Advantages

• Price matching reduces the risk of losing customers to a rival on price alone — nobody can say you are obviously more expensive.
• Customers are more likely to accept a price that is common in the market, because it feels normal and fair.
• You can still gain a competitive advantage: as the cheapest provider, or as a market leader whose brand justifies charging slightly more.
• It can stop competitors from having a price advantage, and it is quick and easy to set because you only need to check rival prices.

Disadvantages

• Trying to match or beat the lowest prices risks low profits, or even a loss, because the price may not cover your operating costs.
• It can mean lower revenue or smaller profit margins than a business charging more.
• A smaller or newer business may struggle to match larger competitors that benefit from economies of scale — lower costs per unit because they buy in bulk.
• You may still lose out to a competitor with stronger brand loyalty, so you need other ways to stand out.