Competitive Pricing

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DEFINITION of 'Competitive Pricing'

Setting the price of a product or service based on what the competition is charging. Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar. This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium, which often occurs when a product has been on the market for a long time and there are many substitutes for the product.

BREAKING DOWN 'Competitive Pricing'

Businesses have three options when setting the price for a good. They can set it below the competition, at the competition or above the competition. Above the competition pricing requires the business to create an environment that warrants the premium, such as generous payment terms or extra features. A business may set the price below the market - and potentially take a loss - if it thinks that a customer is more likely to buy other products as well.

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