Competitive pricing

Competitive pricing is a pricing strategy where a business sets its prices based on what competitors are charging for similar products or services. In highly competitive markets, especially those with little product differentiation, price becomes a key factor in customer decision-making. Rather than focusing on a company’s costs or solely on value perceptions, competitive pricing involves analysing the prevailing market rates and positioning prices accordingly to attract customers while maintaining profitability. This approach aims to capture market share, enhance customer loyalty, and respond dynamically to market fluctuations. Several models underpin competitive pricing. The most common approaches include parity pricing, where the company matches the competition; premium pricing, where prices are set above the market to signal superior quality or brand prestige; and penetration or discount pricing, where prices are set below competitors to quickly grow market share or encourage trial. The effectiveness of each approach depends on market conditions, brand strength, product uniqueness, and customer preferences. Companies must routinely monitor competitors’ prices, adjust strategies in response to market changes, and be wary of price wars that can erode margins for all players. In sectors such as life sciences, retail, and hospitality, competitive pricing plays out in distinct ways. For instance, in hospitality, online travel agencies and hotels continually adjust room rates in response to rivals,