Business Studies – 3.3.2 Price | e-Consult
3.3.2 Price (1 questions)
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Competitive pricing involves setting prices based on the prices charged by competitors. The business aims to match, undercut, or price slightly above competitors, depending on its overall strategy.
Characteristics of Competitive Pricing:
- Price matching: Setting prices to be the same as competitors.
- Underpricing: Setting prices lower than competitors to gain market share.
- Price skimming: Setting a high initial price and then gradually lowering it over time.
- Penetration pricing: Setting a low initial price to quickly gain market share.
Benefits of Competitive Pricing:
- Maintains market share: Helps the business stay competitive and retain customers.
- Easy to implement: Relatively straightforward to implement, as it involves monitoring competitor prices.
- Responsive to market changes: Allows the business to quickly adjust prices in response to competitor actions.
- Can attract price-sensitive customers: Underpricing can attract customers who are primarily concerned with price.
Drawbacks of Competitive Pricing:
- Price wars: Can lead to price wars, where businesses constantly lower prices to undercut each other, reducing profitability for all.
- Low profit margins: May result in low profit margins, especially if the business is constantly undercutting competitors.
- Focus on price, not value: Can lead to a focus on price rather than on product quality or customer service.
- Difficult to differentiate: Can be difficult to differentiate the product from competitors if the only competitive advantage is price.
Examples of competitive pricing strategies:
| Competitive Pricing Strategy | Description |
| Price Matching | Matching competitor prices exactly. |
| Underpricing | Setting prices lower than competitors. |
| Price Skimming | Initially high price, then gradually lowered. |
| Penetration Pricing | Initially low price to gain market share. |