Competitive pricing strategies: A Comprehensive guide to gaining market advantage

If you’re not obsessively analyzing your competitors’ pricing, you’re setting yourself up to lose. 

Pricing is a story. A strategy. A signal to your customers about the value you offer and where you stand in the market. And if you’re not keeping a close eye on what your competitors are doing, you’re letting them write your story for you.

A recent report from Emarketer found that 91% of consumers worldwide say the most important factor when considering a purchase is that it offers good value for their money. Ninety. One. Percent. That’s the battleground where your business wins, or loses. And, having a competitive pricing strategy in place can help you come prepared and ready to compete.

In today’s guide, we’re going to break down exactly how to do it. Step by step. But first...

What is competitive pricing?

Competitive pricing, at its core, means setting your prices based on what your competitors are charging. Simple, right? But don’t mistake simplicity for lack of power. This is a strategic tool that can drive your business forward.

If you’re a new business, you might not have enough customers yet to fully understand who they are or what they’ll pay. That’s normal. When you don’t know your ideal buyer or what they’re willing to pay, analyzing competitors becomes your shortcut to this insight.

Look at companies offering similar products (competitor prices) to the audience you want to attract. What are they charging? What’s resonating with their customers? You can then use that intelligence to position yourself to compete, or better yet, to win, by making yours the same price or undercutting their prices where it makes sense.

Importance of competitive pricing in business

In today’s market, customers are more informed and more empowered than ever before. They’re no longer just walking into brick-and mortar stores and buying what they see based on impulse decisions. They’re comparing. They’re researching. They're shopping around. And, they’re asking one simple question: Am I really getting the best value for my money?

Let us hit you with a stat from PwC’s Global Consumer Insights Pulse Survey, published last year. 29% of pre-purchasers visit price comparison sites before making a decision. And guess who’s leading the charge? The future generation of buyers of course, Gen Z. They're the most price-savvy generation we’ve ever seen, growing up in an era of instant information and endless options. They don’t just look for deals but instead expect them. That means if your pricing isn’t competitive, you’re not even in the running to attract customers of this demographic.

Pricing is perception. A competitive price signals value, fairness, and relevance. An uncompetitive price, on the other hand, signals indifference. And, in a world where trust and value drive nearly every purchasing decision, with 70% of consumers citing trust in the brands they buy from as very important, indifference could be a fast track to irrelevance.

The stakes couldn’t be higher. There's a growing increase in competition out there and 84% of businesses say their industry has gotten more competitive in recent years. So you need to be standing out in a sea of options, not just as another choice but as the choice.

This isn’t optional. This is how you stay relevant, stay competitive, and stay ahead. Because in business, as in life, those who adapt, win.

The market landscape

The market isn’t static. It’s alive. Constantly shifting, evolving, and challenging businesses to keep up. In the words of Darwin, “It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.” And in today’s markets, change is the only constant.

Think about this. We’re living in an era where the competition is global. Technology has obliterated borders, creating a marketplace where your fiercest rival could be halfway across the world. Add to that the speed of information. Customers can compare prices, reviews, and features in seconds.

And then there’s innovation, entire industries are being disrupted overnight. Streaming vs cable. Electric cars vs gas. Plant-based milks vs dairy.

Here's some of the key factors that influence the landscape today:

Unique market characteristics

What works in one market can completely flop in another. The beauty of competitive pricing lies in understanding these nuances and using them to your advantage.

Take the luxury goods market. This isn’t about fighting to be the lowest price—it’s about being untouchable. You don’t walk into a Hermes store looking for a discount. No, you’re walking in because that Birkin bag represents something. It screams status. Hermes has figured out that pricing is more about prestige than price tags. You don’t buy a Birkin for a deal. You buy it because it’s a symbol of success. That's probably why Fortune Magazine stated they're a "better investment than gold."

Then, there's seasonality. In fashion, tourism, or agriculture, prices don’t stay static. They shift. A $300 winter coat? Great buy in December. In March, it’s worth nothing. Out of season, out of sight.

Consumer behavior

Customers today are smarter, louder, and they’re evolving at a pace that demands you stay agile. A great product or low price isn’t enough anymore. You have to understand what’s driving your customers (their mindset, their needs) and adjust your competitive pricing strategy accordingly.

We could spend hours talking about the trends (and we've got a great blog on retail trends for 2025 if you're interested), but for now, we'll just give you some highlights that'll help your pricing strategy.

First up is hybrid shopping. Consumers are mixing online and offline experiences. They expect the same price or consistent pricing, whether they’re in-store or on their phone. Price matching is non-negotiable when you're doing competition-based pricing. You’re not competing with one store but an entire online ecosystem.

Then you've got Gen Zs, they’re not just price-sensitive, they care about authenticity. If your pricing strategy isn’t showing transparency, you’re losing their trust.

Economic factors (and the magic of e-commerce platforms)

The market is constantly shifting, influenced by everything from inflation rates to consumer spending power. But one thing has become crystal clear, e-commerce platforms are here to stay with over 2.4 billion shoppers globally this year. So, businesses must adjust their pricing strategies to account for this. Gone are the days when pricing was just based on production costs or local competition. Now, your pricing decisions must reflect a broader, more global economic landscape.

Benefits of competitive pricing strategies

We’ve already covered why competitive pricing as a whole is essential, but let’s narrow our focus now: Here are some specific benefits of a competitive pricing strategy:

1. Market alignment and competitive edge

Competitor-based pricing gives you that much-needed edge. You can't just slap a price on something and expect customers to flock to you. Price positioning is everything. If your competitors are charging $100 for a product and you're charging $200, you may just alienate half your potential market. But get it right, get those competitors prices dialed in, and you’ll position yourself as the value option.

2. Increased sales and market share

Competitive pricing drives sales. You can’t just sit back and rely on old pricing tactics and expect customers to flock to you. If you want market share, you need to gain new customers, and competitive pricing is how you do that. Whether you’re using a penetration pricing strategy to attract fresh faces in the short term or using premium pricing to attract high-value buyers, you’re not going to increase market share without adjusting to what your competitors are doing.

3. Flexibility and responsiveness to market price

The market doesn’t wait for you. It moves fast. So, your pricing strategy has to be agile. Having a flexible pricing strategy is non-negotiable. If you’re not responding to shifts in competitor pricing, you’re essentially playing catch-up. If someone drops their price, you’ve got to be able to react fast and make the necessary price adjustments.

4. Enhanced customer perception

Customers can smell a bad deal from a mile away. If your pricing isn’t in tune with the value you’re delivering, they’ll know it. It’s not just about the lowest price—it’s about perceived value. When you get your pricing right, customers feel like they’re getting something special. If your product is priced correctly for the market, they’re more likely to buy—and more importantly, they’re likely to stay.

Types of pricing strategies

Here are some other pricing strategies you can use, as well as having a competitive pricing strategy:

Cost-plus pricing 

This is where you calculate the total cost of producing a product, then add a markup to ensure you’re making a profit. It’s easy to use, but it can limit your profit margins and pricing flexibility. That's because it doesn’t take into account what your customers are willing to spend, nor does it factor in the competitive landscape.

Value-based pricing 

This pricing method is about determining what your product is worth to the customer, not what it costs you to produce. If you’re pricing based on value, you’re focusing on customer perception and willingness to pay, rather than just production costs. It's exactly how Apple, Tesla, and other premium brands thrive. By pricing based on value, you’re not constrained by your cost structure.

Penetration pricing 

If you’re trying to break into a new market or disrupt the competition, this is the secret you needed to hear today. The idea is simple, set a lower price than your competitors to attract customers fast. You’re not looking to make a huge profit upfront. Instead, you’re focused on building market share and getting customers hooked. Once you’ve built a customer base, you can gradually increase your prices. Think about streaming services like Netflix or Spotify, they use penetration pricing to get customers in the door at a low cost, then raise their prices once they’ve built loyalty.

Skimming pricing 

Ideal for when you’ve got a new, high-demand product and you want to capitalize on early adopters. With a skimming pricing strategy, you start with a high price, targeting the customers willing to pay a premium for the latest and greatest. Over time, you lower the price as the product moves through its lifecycle and you expand your customer base. It's how the tech industry works. When a new iPhone's released, the price is sky-high. As newer models are released, the price drops to make way for the next big thing.

Dynamic pricing 

This is the magic of adjusting your prices in real-time based on demand, competition, and market conditions. Ever notice how flight tickets or hotel prices change based on the time of day, the season, or how close you are to your travel date? That’s dynamic pricing at work. Uber, Airbnb, and Amazon all use this to their advantage.

With these strategies you can play around with price anchoring, psychological pricing, bundle pricing, price elasticity and other price adjustment tactics.

TIP: Check out our full list of retail pricing strategies in our complete guide. Or, check out our diminishing marginal utility blog to learn this economic law that can help you set your prices right!

How to implement a competitive pricing strategy

You know what it is. You know why it's a great pricing strategy to implement. You know some other pricing strategies you could use in tandem to really strengthen your market position. Let's now talk about how to implement it:

Comprehensive market research

As Peter Drucker, a brilliant mind in business, famously said, “What gets measured gets managed.” You cannot make informed pricing decisions without having a thorough understanding of the market landscape. You need to know what your competitors are charging, yes, but also why they’re charging it. What are their pricing models? What’s their value proposition?

To truly grasp this, use tools to track competitor prices constantly. Monitor the shifts. Analyze their product positioning, are they using premium pricing or penetration pricing? Ask customers. Read reviews. Get feedback. Understand perceived value. Reverse-engineer their pricing. What’s included in their packages? What features do they prioritize? Once you know their pricing strategy inside and out, you’ll have the insights you need to outsmart the competition.

Thorough competitive pricing analysis

A great pricing strategy doesn’t happen by chance. It’s the result of thorough competitive pricing analysis. Understand exactly how your competitors are pricing, and where they’re winning or losing. It’s about seeing the gaps in their strategy, gaps that you can exploit.

Start by collecting real-time pricing data. Track not just the prices, but the frequency of changes—are they adjusting prices seasonally? Are they offering discounts or promotions? Analyze their pricing models. Are they using value-based pricing, or just matching the prevailing market price? Use that data for price benchmarking.

Cost analysis and management

Start with the basics: fixed costs and variable costs. Understand everything that goes into producing your product or service. Then, calculate your break-even point. What’s the minimum price you need to charge just to cover costs? From there, you can begin to add value.

Dynamic pricing capabilities

Say a competitor lowers their price overnight. With dynamic pricing, you can respond just as quickly. Or maybe demand spikes for your product—raise the price. This isn’t manipulation; this is smart pricing. You’re optimizing for maximum profitability while still offering value. Algorithms, real-time data, and market intelligence tools make this possible.

Value proposition alignment

To align your pricing with your value proposition, you have to understand what your customers truly value. Are they looking for premium quality, or are they focused on convenience? Does your product solve a problem that others can’t? If you’re offering something that’s truly unique, you can command a higher price point. If not, you have to find ways to communicate the value you do offer.

Customer feedback and engagement

Your customers are the ones who will tell you if your price is too high, too low, or just right. And guess if you’re not asking for their input, they’ll vote with their wallets.

Gathering feedback through surveys, reviews, or social media channels. But don’t just collect it, act on it. If customers are saying your price is too high, look into that. Why? Is it because they don’t see the value? Or are they just price sensitive? This'll inform whether you need to adjust your price, improve your value proposition, or repackage your offering.

Legal and ethical considerations

In the rush to stay competitive and maximize profits, it’s easy to forget that pricing isn’t just about what the market will bear, it’s about doing the right thing. Unethical pricing strategies like price fixing, price gouging, or misleading promotions not only hurt consumers, but they’ll destroy your reputation and can land you in serious legal trouble.

Challenges in implementing competitive pricing strategies

The market’s complex. Competitors are ruthless, and customer expectations are ever-growing. To succeed, you need to stay sharp, adaptable, and willing to tackle the real hurdles head-on. They include, but are not limited to:

Data accuracy and availability 

If your data isn't accurate, it’s useless. The market moves fast, and relying on outdated or incorrect data can sink your pricing strategy before it even starts. You need real-time data, and you need it from reliable sources.

Rapid market changes

A competitor launches a new product. A global event changes consumer behavior. Suddenly, your pricing model isn’t competitive anymore. And you don't yet have an international pricing strategy. Adaptation is the name of the game.

Competitor reactions

You set a price, and your competitors react. Sometimes it’s a price war. Sometimes it’s a strategic move. Either way, if you’re not ready for their response, your strategy can fall apart.

Maintaining profit margins

You want to be competitive, but not at the expense of your profit margins. There’s a fine line between setting competitive prices and slashing your own profitability. You have to strike the right balance.

Customer loyalty

Price is powerful, but loyalty is more so. Chasing lower prices isn’t always the answer. If all you’re doing is undercutting your competitors, you’re not building trust. You're just creating furious customers who will leave you for the next deal.

Race to the bottom

Racing to the bottom on price is a fool’s game. Sure, it looks good in the short term, lower prices, more sales, big numbers. But, you’re sacrificing your brand value and your profit margins. What happens when you’ve slashed everything to the bone? You can’t sustain it.

Overemphasis on price

When you focus too much on price, you forget the bigger picture: value.

Misreading market signals

Price increases could mean demand is up, or they could be a sign of an opportunity to expand. But misreading these signals will have you setting the wrong price, at the wrong time, to the wrong customers.

Neglecting cost structure

You can’t afford to play pricing games without knowing exactly how much it costs to make that product, deliver that service, and keep your doors open. If you’re not keeping a close eye on your costs, it’s not sustainable.

Customer perception issues

One misstep, one price hike, one price drop too far, and you risk losing trust. Customers don’t just care about prices, they care about how they perceive your brand. Get it wrong, and they’ll think you’re greedy, inconsistent, or out of touch. Get it right, and they’ll think you’re worth every penny. 

Competitive pricing examples

Let’s talk real-world examples of competitive pricing strategies that work in different industries:

Retail industry example

Amazon and Walmart constantly adjust their prices using dynamic pricing algorithms that factor in demand, inventory, and competitors prices, leading to intense price competition, with a 2021 Jungle Scout study revealing that Walmart's prices were, on average, 4% lower than Amazon's for identical products across 10 popular categories.

Hospitality industry

Fast-food chains like McDonald's, Burger King, and KFC are notorious for engaging in price wars, frequently discounting menu items to attract customers and outcompete their rivals.

Subscription services

Uber and Lyft are brilliant examples of competitor pricing. To attract riders, they both constantly offer discounts and promotions, all the while keeping an eye each other's pricing to remain competitive.

Tools and resources to polish your competitive pricing strategy

To win at competitive based pricing, you need the right tools, like:

Pricing analytics software

Perfect for cost leadership. Helps your price testing strategy so you can identify trends, optimize pricing decisions, and maximize profits with data-backed accuracy.

Market research platforms

You want to know where the market’s headed? Not just your competitors, but the entire industry pricing trends landscape? These platforms give you insights into consumer behavior and pricing trends. You can’t set prices without understanding the whole market.

Competitor price tracking tools

Know your competition like the back of your hand. You have to stay on top of their every move. Price shifts, promotions, discounts—real-time tracking is everything.

Customer feedback tools

Feedback tools let you gather real opinions on what customers think about your pricing, allowing you to adjust and boost satisfaction.

Cost analysis software

You can’t just worry about what your competitors are charging. You have to know your own costs. This tool keeps you profitable while you stay competitive. Don’t undercut yourself just to match a competitor’s price.