DEFINITION of 'Follow-The-Leader Pricing'

A pricing strategy in which a business sets the price of its product and service offerings to be the same as its largest competitor. A follow-the-leader price strategy can entail either raising or lowering the price. The competitor may choose to counter this strategy by continually raising and lowering prices to make matching difficult.

BREAKING DOWN 'Follow-The-Leader Pricing'

This type of pricing strategy does not work for businesses of all sizes. For example, a small business lowering its prices to the same level as a big box retailer will have a more difficult time competing because larger retailers purchase inventory more cheaply by buying in bulk and typically will maintain higher margins. In this case, the small business may set an unsustainable price that will force it out of business.

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