Marketing & Sales – Competition Based Pricing
a) Destroyer Pricing
This strategy is used as an attempt to eliminate competition. It involves lowering your prices to an extent where competition cannot compete and consequently, they go out of business. By just reading the last sentence, it sounds very threatening to not only the competition, but also to yourself: this is what you find with all competition based pricing strategies.
It is therefore important that you recognize how threatening the competition is and research how competitive they can be with their prices: they may be able to compete with your price cuts and consequently you both, or even just yourself may go out of business.
b) Price Matching aka Going Rate Pricing
Many businesses feel that lowering prices to be more competitive can be disastrous for them (and often very true!) and so instead, they settle for a price that is close to their competitors.
Any price movements made by competition is then mirrored by yourself: so long that you can compensate for any reductions if they lower their price.
Your business may be considered as one of the more dominant within its market because you offer a service or product that is unique or popular (through branding). As a result, you may have the power to set the price in which your competitors will attempt to follow.
c) Price Bidding aka Close Bid Pricing
Price bidding is a strategy most common with manufacturing, building and construction services. For example, if a restaurant was to be decorated, then the owner would consult a number of decorating services for a quote and the best offer (not necessarily the lowest) would be taken. If this was considered a big job (likely to generate high revenue), then some decorating businesses would consider cutting their prices as it may account for a large proportion of their annual revenue.
Sometimes, particularly if it was a job for the government, all the consulted businesses will send a representative to bid for the work as if it was an auction.
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