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The Dos and Don’ts of Competitive Pricing Strategy

As a business owner, competing in the market is important to stay relevant and profitable. One of the most effective ways to compete is through pricing. Pricing strategy plays a crucial role in attracting customers and staying ahead of the competition. However, it can be a challenging task, especially for small businesses with limited resources. This article will provide you with the dos and don’ts of competitive pricing strategy.


1. Research your competitors: Before setting your prices, research your competitors in the market. Check their pricing strategies and the products or services they offer. Analyze their strengths and weaknesses and compare it to your business. This will help you set competitive prices and identify areas for improvement in your business.

2. Define your value proposition: It is essential to understand your brand’s unique selling proposition (USP). Your USP will differentiate your business from your competitors and help you set your pricing strategy. If your business provides added value in terms of quality, service, or convenience, you can justify your prices above the competition.

3. Price according to the market: Pricing should be determined by the market demand for your products or services. Studying the market trends can help you determine the optimal price on which customers are willing to spend. Setting prices too high or too low can discourage potential customers from purchasing from your business. Also, pricing should be reflective of customer shopping behaviour like seasonality, discount, etc.

4. Offer discounts: Offering discounts or promotions can be an effective way of attracting customers, increasing sales and reducing inventory. However, incentives should be structured in such a way that the profit margins are maintained. There should be a realistic expectation of winning back enough business to justify the discounting effort.


1. Engage in price wars: Competing by lowering your prices can lead to a price war. Ultimately, this can lower profit margins and make it difficult to recover the costs. Lower pricing may also lead to a perceived drop in quality.

2. Ignore costs: While creating a pricing strategy, you must not ignore your actual business cost. It’s essential that costs such as your staff salary, rent, supplies, equipment, etc. are factored in when setting your prices.

3. Disregard Different Markets: Different markets have different price sensitivities. While setting prices, one should be sensitive to market diversities cross the boundary of geography, culture and demography. Businesses with customers who are price-sensitive may require more price adjustments than businesses with target customers with higher disposable income.

4. Use Benchmarking: While benchmarking is a good practice, it should not be only used to determine the pricing strategy. Benchmarking can help you identify pricing gaps, but copying competitor’s pricing can harm your business. It is important to take into account your own unique value proposition, customers, and market segment before setting the prices.

In conclusion, pricing strategy is a sensitive aspect of your business, and any mistakes can lead to irreversible losses, so it is better to act with caution. A pricing strategy that conveys your brand’s value proposition to customers and still drives the profit margin is key to achieving long-term success. Implementing the dos and avoiding the don’ts in the pricing strategy can boost your business profitability and differentiate you from competitors.