Pricing strategy is the policy a firm adopts to determine what it will charge for its products and services. Competition-based pricing uses as key information the competitors’ price levels, as well as behavior expectations, observed in real competitors and/or potential primary sources to determine adequate pricing levels to be practiced by the company.
Such a method may well apply to medium-share companies competing against high-share competitors (such as local hotels competing with international hotel chains) or for products with low differentiation (such as gasoline).
Competition-based pricing describes the situation where a firm does not have a pricing policy that relates to its product, but instead a pricing policy that reflects its competitors’ pricing decisions.
The main advantage of this approach is considering the actual pricing situation of the competitors, and its main disadvantage is that the demand related aspects are not considered. Furthermore, a strong competitive focus among the competitors can increase the risk of starting a price war among competitors in the market.
Competition-based pricing
