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Modify Your Pricing Strategy Whilst Still Protecting Your Profit Margin


Every successful business needs to have an effective pricing. And that is a fact. The reason being because this is the only possible way to find out at what amount or price they must sell a certain product. Even so, it is true that each business has a great profit margin that must be kept or maintained but it is crucial for a company to choose from various pricing methods and this highly depends on different factors.

To be able to maximize each unit’s profitability, a business may set a specific price. Setting a price can halt competitors from entering, staying in the market or improving their market share. Thus having the right competitors pricing strategies is a great advantage.

When it comes to building practical marketing strategies, it is believed that pricing is one of the most vital elements. This is because the primary aspect that a consumer notices when looking for a product is the price itself as it is a deciding factor, basis and indicator on whether the customer will end up purchasing it or not.

In order to make sure your business has a competitive price but at the same time is still profitable and able to maintain its profit margin, there is a strategy you should to follow:

The Competitive Pricing Strategy.

Competitive pricing refers to the product’s price based on the amount the competition is charging. This is considered one of the biggest strategies in pricing adopted by many businesses.

You need to keep in mind that the main criteria to consider in a pricing strategy (that is competition based) is the customers’ behavior or approach. Other important factors that companies consider are costs, price sensitivity, and competition. To assure the sustenance of the business’ profit, managers have to set the price in a way that it covers the overhead costs of the company, production costs and the profits it can provide.

Also, you should bear in mind two things when building the right competitive price for your product; the product stage where it is at and the product life cycle. If a certain product is still under the developmental stage, you may ignore the competition. However, if it is already existing in the market with the rest of the other competitors (with a relatively higher number), then you should be careful but make sure to keep an eye on your opponents every move.

When pricing, here are three options you may take into account: a lower price, the same one or a higher price than the rest. The usual technique is to set it depending on the competitors which are, basically, the essence of competitive pricing strategy.

Let’s look into it in more detail:

1. If you wish it to be higher than your competitors, you have to add some distinctive and new features and also a noticeable product development to justify its price hike.

2. If the price is lower, it must be based on your resources. This strategy should only be applied if the volume can be increased without compromising or touching the production cost setting it higher. However, the risk lies in the diminishing profit margin which may lead to bankruptcy if not able to recover. So, assessing every single step of your competitors is highly vital as you establish the product price.

3. If you decide to set your product price to the equivalent to those of your existing competitors, the differentiating element may not occur. And for you to be in a win-win situation while the rest are falling behind, you will have to provide a much better version of your product.

So since competitive pricing is a crucial game to play to protect your profit margin and also boost your business, you are required to have a deep knowledge of your target audience and the market. Price analysis is believed to be the backbone of competitive pricing strategies since the competition factor is the central pillar in setting the prices of your products. A lot of effort is spent in the process of establishing a price according to the competition and minor differences in the prices can either raise or lower the overall profit margin by about 20-25%.