competition-based pricing

competition-based pricing

pricing methods which determine the PRICE of a product primarily on the basis of the prices charged by competitors.

In markets where products are highly standardized (i.e. COMMODITY-TYPE PRODUCTS), customers are likely to see competing brands as close substitutes for one another, so that any price differences would cause switching to the lower-priced brand. In such markets a seller has little pricing latitude and must set the price at the going rate as determined by supply and demand. With few manufacturers supplying the product (i.e. OLIGOPOLY), any one firm will be acutely aware of the harmful effects on its market share and sales volume of a price which is even slightly higher than those of its competitors and will therefore tend to charge an identical price to competitors.

Where suppliers are required to put in a sealed price bid or tender to supply, for example, components to a manufacturer, or build a complete factory or ship, competitive conditions may be paramount. A firm must guess the likely sealed bid prices of its competitors for the work and in the light of its own cost conditions make an appropriate price bid. See COST-BASED PRICING, DEMAND-BASED PRICING.

References in periodicals archive ?
Nonetheless, researchers mostly agree that pricing strategies can be categorized in three big groups: cost-based pricing, competition-based pricing and customer value-based pricing (Nagle & Holden, 2003).
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 (Liozu & Hinterhuber, 2012).
In this sense, competition-based pricing strategies are very dangerous because the company does not effectively have clear cost or profit information from its competitor who, in some instances, may be working with very low margins (Nagle & Holden, 2003).
Adopting a competition-based pricing strategy has a direct and negative impact on profit margin.
In such study, they addressed the three main pricing strategies: customer value-based pricing (in four companies), cost-based pricing (in six companies) and competition-based pricing (in five companies).
Based on the constructs of Pricing Strategies (customer value-based, competition-based and cost-based) and Price Levels in relation to the competition (higher or lower), it was identified that cost-based and competition-based pricing strategies did not show significant differences between their means with regard to the profit margins.
H2 indicates that the competition-based pricing strategy did not significantly influence the profit margin of the companies analyzed (-0.014 in model 2 and -0.003 in model 3), thus rejecting H2.
Location-based pricing can go by several aliases, including competition-based pricing, market-specific pricing or market-variance pricing.
In reality, however, firms have often used the most common strategies: cost-plus pricing, competition-based pricing, or consumer-based pricing, explain Raju and Zhang, both professors of marketing at the Wharton School, U.

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