It’s not uncommon for customers to scour the internet for the best bargains. Therefore, to win over customers, it’s imperative to price products competitively. However, pricing products too low can drive down margins and make it impossible to sustain a business. The key is to have accurate information to price products high enough to maximize profits, while low enough to win customers.
Monitoring competitor prices can help you know when you have to lower prices to meet customer expectations, when you have to raise them, and when you are better off keeping things the same.
Based on our experience working with some of the major retailers and brands, we’ve identified some common challenges and best practices to help you get started with a competitive price monitoring strategy.
- Which categories and SKUs should I monitor?
Knowing which categories and SKUs you should focus on depends on how you define your business. When customers think of your store, which items do they instantly associate with you? In which categories are you expected to attack and in which ones should you merely play defense.
- Which competitors should be on my radar?
The number of competitors to monitor will depend on the categories, and the list will keep changing as retailers add and remove new items to and from their assortment. The only competitors you should care about, however, are the ones your customers would likely turn to for price-sensitive key value items. A good rule of thumb is focusing on six to eight competitors most similar to you. Also, low traffic on a specific competitor’s website means that you should not respond to their price changes.
- How frequently should I change or monitor prices?
Some major retailers using dynamic pricing are regularly checking competitors’ prices on every single item they offer. Frequency, however, depends on the item’s importance and price sensitivity. Key value items (KVIs) are typically reviewed every two hours, while other products are reassessed every week or every month. Ultimately, the decision keeps coming back to how dependent sales are on the price of a given item and how often competitors are changing their prices.
- What are my matching rules to compare my products with my competitors’ products?
When comparing your prices to the competition, it is essential that you are comparing the same products. Regardless of the category, you need to define which product features or attributes your customers care most about. For example, if you are selling furniture – difficult product category to match – you may decide that the kind of material (fabric, wood, glass, leather) is the most important attribute when comparing items.
To learn more about how you can price competitively, while protecting margins, check out our eBook Pricing Intelligence 2.0.
Mihir Kittur is a Co-founder and Chief Innovation Officer at Ugam. He oversees sales, marketing and innovation and works with leading retailers and brands with insights and analytics solutions around their category decisions to improve business performance.