 Welcome to Enhance.training YouTube channel. This is the second episode in our series on pricing strategies. Last time we looked at the cost plus pricing strategy. But what is downsides is that it doesn't take the competitive environment into account. So we're going to address that with this second part in the series as we're going to be looking at competitive pricing strategy. Pricing your products can be a minefield that many people simply shy away from or try to ignore. But your business will thank you and reward you if you give pricing the time and effort it deserves. In this video, I'm going to tell you what competitive pricing strategy is, why it works and doesn't work and where it works best. My name is Anna Taylor and if you're new to this channel, Enhance.training provides online business courses to help professionals, managers and business owners improve their performance. For over 15 years, I've worked in finance alongside sales and marketing teams and I've seen firsthand the importance of getting that pricing right. From training sales forces and marketing teams in margin and pricing to co-designing and calculating the impact of entirely new price pack architecture and pretty much everything in between. Now they say that pricing is either well your most powerful weapon or your worst enemy and I want to make sure that it's the former for you. So if you like this video, please give it a thumbs up, subscribe and share it with friends. Well, competitive pricing is simply where you base your pricing on your competitors' products and prices. If you don't know the answer to your pricing question, then you may well be tempted to simply well look around you and see what everyone else is doing and do likewise. Well, there is actually some merit in this and it is always great to be aware of the market around you. There are different methods for competitive pricing but here are two examples. So the first is simpler and it's when you look at the prices set by other businesses in the same sector for similar products and then you implement a price just like theirs, perhaps the same or slightly higher or lower. You simply look at what everyone else is doing and you do the same. Now the second method is slightly more detailed and it does require more time and analysis because this is where you take all similar products in the marketplace whether direct or indirect competitors and you order them from the most premium at one end to the most basic at the other end and then you decide where in that line you want your product to go. You match your product to the price in the market when you see your product fitting best. Now in both scenarios, you have three options because you either price lower, you price the same or you price higher. It's now estimated that almost 92% of shoppers are comparing prices at some point or the other while shopping online. So a lot of companies have to resort to competitive pricing to ensure that their consumers do not simply move to another competitor for their low costs. Now for this first type of competitive pricing that I described, there are certainly times when this method is particularly relevant, especially if your customers are very price sensitive and your competitors are reactive. Now businesses that use platforms such as well Amazon or similar will need to use competitive based pricing extensively because consumers can compare prices easily and continuously. Now let me give you a quick tip of the day because beware of price wars because if you know that your competitors will react to your prices, make sure that you do not simply drive the price lower and lower until nobody can make any profit. It's no good for anyone. Whilst it's good to be aware and react to your competition, be careful to make sure these prices at least cover your costs. You must know when to stop. And as for the second competitor method, well this is applicable for almost any company, even those with very few direct competitors as it's always valuable to benchmark yourself in the marketplace. It helps you to understand your consumer, what they like and what they've been willing to pay. And this research could also help shape your marketing message. Now earlier I said that you have three main choices with competitive pricing. So now let's go through three specific examples so you can see who might make each decision and why. So first up, let's say that a retailer has their own brand of soup and they know the price of the branded soups and they decide to price lower. Now in doing so, the retailer hopes to make more sales based on the assumption that consumers will then choose their lower cost product over their pricier soup options. Now pricing lower can help to grab people's attention and steal market share. Now the second option, well you see a competitor is selling exactly the same product as you. It's the same brand, it's the same recipe and the product is widely known. So you decide to price at the same price. As this price is the same, you'll have to do something a bit different to stand out to that consumer. Perhaps you'll support a particular charity, perhaps you'll make your product more visible but marketing will be the key. Because when a business matches the price of competition, you'll need to set yourselves apart from that competition. And this is often done through creative marketing and branding techniques that help create a unique value proposition. You've got to be different somehow. And the third example, your third option, well let's say you want to introduce a new TV into the market with features that have never been seen before, well you look at your competitors and you decide to price higher. But how do you attract customers to a higher price point? Well, you set yourself apart from the competition by offering a premium product with us, perhaps a sleek design and those additional features. And since your competitors, well, they don't offer these add-ons, then consumers will be more likely to pick your premium TV. So why is competitive pricing great? Well, there are plenty of reasons this pricing strategy is so popular and it does have its advantages. First of all, it's fairly simple, especially when you have very few competitors. So instead of spending hours inputting formulae into spreadsheets, all you have to do is copy what someone else is doing, what's already working for someone else. Or you need just some basic research and insight into who your competitors are, their quality of products and how they price and well, you can have your pricing answers in a few hours. And this is another benefit of competitive pricing. It's low risk because if these prices are working for your competitors for some time, well, in theory, they should work for you too. And as long as they cover your costs, well, you shouldn't go bankrupt. And thirdly, it can help with the accuracy of your pricing because in a saturated market like retail, the well-established price of the competitors is likely to be a true indicator of consumer demand and therefore expensive and time consuming testing programs can be completely avoided. And finally, it is a great method to be used alongside other pricing strategies and this is certainly what I would always advocate. But watch outs, because while it's always a good idea to be aware of your competition and the market conditions around you, it's not all good. And I personally think that this method should never be used on its own. So let's have a look at some of the watch outs or the disadvantages now. Well, the first watch out is to make sure that you do not drop your price too low to copy a competitor if you can't afford it. Do not drop your prices so low that you cannot cover your costs. It's obvious, isn't it? And secondly, well, copying competitors and always wanting to be the cheapest can lead to a downward spiral of prices and a loss of perceived value for the consumer. And once you've dropped those prices so low, consumers will be less likely to pay the higher price. For example, did you know that over 80% of washing powder is sold on deal? That means that less than 20% of people ever pay the full price because we've all been conditioned to pay less through deep discounts and deals. Now, thirdly, there may be missed opportunities in using this method because simply copying others will not help you to reflect the value that your product specifically gives. And it's unlikely to maximize your price and profitability in your business. And finally, copying can be wrong because be careful you're not copying someone with the wrong answer. If they've gone wrong, have the wrong information or insight, then so will you. So in summing up, some form of competitive pricing is essential in many of today's marketplaces and having an awareness of your competitors and their product quality and prices can help you get a better idea of the market and consumer demand. And as with cost plus pricing, I would not recommend that this method be used in isolation on its own but combining it with cost plus pricing and the method I'm going to talk about next time, you'll be aware of the market, you can stay ahead of the competition and be able to cover your costs. Next time, we'll be looking at my favorite pricing method, value pricing. So tune in to see how you can maximize the value of your sale by giving consumers what they want. If you need a few pointers on how to choose a strategy or some extra pricing advice, then visit us at Enhanced Stop Training and select articles or better still, why not sign up to our Price Learning Hub for access to pricing calculators, fact sheets, how-to guides and much more. If you like this video, please hit the thumbs up button below and subscribe and hit the bell to get notified about weekly video releases. This really helps us produce more videos to help you. Thank you for watching and I look forward to seeing you soon.