Competitive Pricing

Loading the player...

What is 'Competitive Pricing'

Competitive pricing is 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.

RELATED TERMS
  1. Perfect Competition

    A market structure in which the following five criteria are met: ...
  2. Price War

    When companies continuously lower prices to undercut the competition. ...
  3. Canadian Competition Act

    A federal law that governs business practices in Canada. The ...
  4. Offensive Competitive Strategy

    A type of corporate strategy that consists of actively trying ...
  5. National Diamond

    A theory of competitive advantage developed by Harvard Business ...
  6. Competition-Driven Pricing

    A method of pricing in which the seller makes a decision based ...
Related Articles
  1. Trading

    Competitive Advantage Counts

    What's the best indicator of a company's future success? Its ability to succeed when others fail.
  2. Retirement

    How To Profit During High Inflation

    Some companies are better than others at pivoting their strategies to overcome inflation or other cost-increasing concerns. The best companies can push cost increases out to the market quickly ...
  3. Entrepreneurship & Small Business

    Understanding Marketing

    Marketing includes all of the activities of a company associated with buying and selling a product or service.
  4. Markets

    Perfect Competition

    Perfect competition is an economic idea that does not exist in the real world but can be used as a standard to measure the efficiency and effectiveness of real world markets.
  5. Entrepreneurship & Small Business

    Understanding Product Differentiation

    Product differentiation is a marketing tool companies use to distinguish their products or services from the competition’s.
  6. Markets

    What's a Competitive Advantage?

    A competitive advantage is an advantage a firm has over its competitors.
  7. Entrepreneurship & Small Business

    How To Make $1 Million In Your Small Business

    Make your dream a reality. Find out what you can do to reach this financial goal.
  8. Financial Advisor

    3 Secrets Of Successful Companies

    Make smart investments by spotting up-and-coming success stories early.
  9. Markets

    Understanding the Product Life Cycle

    Product life cycle is the period of time during which a product is conceived and developed, brought to market and eventually removed from the market.
  10. Investing

    5 Warnings Signs of Risk for a Small Business

    Learn how to keep on the lookout for these five potential warning signs of risk that your small business is stalling out or failing.
RELATED FAQS
  1. Should a small business test the substitution effect on its products before launch?

    Explore the substitution effect and find out how small businesses may evaluate how this principle impacts their own products. ... Read Answer >>
  2. Why is product differentiation important in today's financial climate?

    Learn the importance of product differentiation and how businesses today are utilizing it to set themselves apart from the ... Read Answer >>
  3. What is the difference between perfect and imperfect competition?

    Learn the differences between perfect competition and imperfect competition and what types of markets are considered imperfectly ... Read Answer >>
  4. Do all economists believe in perfect competition?

    Find out why neoclassical economists use unrealistic perfect competition models, and learn why other economists criticize ... Read Answer >>
  5. What happens when a country focuses exclusively on its competitive advantage?

    Find out what happens when a country intentionally focuses solely on its most competitive factors of production or industries ... Read Answer >>
  6. What are some common methods of gathering CI (competitive intelligence)?

    Read about some common methods of acquiring competitive business intelligence, and discover what a good intelligence analysis ... Read Answer >>
Hot Definitions
  1. Diversification

    A risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique ...
  2. European Union - EU

    A group of European countries that participates in the world economy as one economic unit and operates under one official ...
  3. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  4. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  5. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  6. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
Trading Center