In a time of turmoil, market competition becomes fierce. It means that companies will look for a competitive edge and boost sales. Market-based pricing is a simple way to get a competitive advantage. However, to implement the method correctly, it is crucial to know the ins and outs of the process.
When it comes to modern analytical tools meeting foundational pricing strategies, one gets instruments that can help businesses gain a competitive advantage and deal with a turbulent market. At this point, old-fashioned traditional approaches are coupled with Machine Learning (ML) and Artificial Intelligence (AI) to maximize revenue, boost profit, and achieve business goals. In such a case, using algorithmic pricing in the market-based method brings forward the pricing method that can help companies meet the challenges of an economic downturn.
Market-based pricing in a nutshell
Market-based pricing is the method retailers use to set a price tag on different products within a portfolio based on the market data and prices. Luckily, other approaches are available when working with data, like competitor price monitoring. In such a case, advanced tools are available, considering aspects like brand, price positioning, business strategy, and other market data aspects.
Nowadays, marketers worldwide are experiencing the impact of the post-COVID pandemic and are looking for different ways of making the most of the pricing strategy. Respectively, retailers adjust their business approaches and strategies to meet the changing context. In such a case, smart pricing approaches get a new life and are growing in demand. Respectively, with market-based pricing meetings, advanced algorithms businesses gain a new perspective on competitive advantage through a correct pricing approach.
Calculating the market-based pricing
Next. after deconstructing the notion of market-based pricing, it is time to understand how one can calculate it. For example, suppose a retailer positions itself as a business with top-notch quality services. In that case, there is a chance such a company will use premium pricing to boost its brand reputation and get a competitive edge. Within such an example, to calculate market-based pricing, you need to use the cost of a product, the market factor price, and the premium factor. In such a context, the formula looks as follows:
Market-based price = cost of a product + market factor price + premium factor
Keeping that in mind, the market factor price in the formula is all about competitive data and other market data aspects. While the formula above is simplified, it encapsulates the jyst of calculating the market-based pricing phenomenon. Now, it is time to find the starting point for market-based pricing.
Where to start with market-based pricing?
In most cases, choosing the tools for reaching particular business objectives and selecting a pricing strategy directly rely on different factors. For instance, you need to know the market data, industry information, retailer type, and other variables. However, in almost every case, a particular group of products with pricing directly relies on competition and competitors’ data.
In turn, when looking for a starting point for market-based pricing, there are the following elements to take into account:
- Competitive data
- Relevant sales
- Historical sales
- Pricing-specific variables
- Google Analytics data
- Promotion strategy
- Stock clearance attributes
The variables mentioned above are proven to be the starting point for market-based pricing. However, for each product in the portfolio, you need to have a distinct perspective on its SKU. What is more, depending on the state of a product’s lifecycle, a particular role comes with a specific product. At this point, sustainable and effective market-based pricing is about two key things: the first is to segment the existing portfolio based on product roles, and the second is to adopt the correct pricing method for each given segment.
The Role of Pricing Key Value Items (KVIs)
In short, a KVI is a low-margin and high-velocity product in the portfolio. In such a context, it is hard to overestimate the importance of these items. In short, the significance of KVIs is founded in the fact that they move forward the price value perception greater than any other product group. At this point, customers user the KVIs to compare the price within the market to get a hold of the best pricing available.
In such a case, market-based pricing comes with KVIs. It is used to keep customers loyal and get your hands on new consumer groups. Essentially, businesses monitor competitors’ prices on the same product types and later use this information to adjust their pricing strategies and prices. While it may sound like a simple action and not a big deal, in reality, the method is complicated and relies on a great deal of effort and understanding. The thing is, competitors monitor your prices the same way you watch theirs. If both sides start lowering prices, it can lead to a price war, eventually taking down both parties. In such a case, tapping into market-based pricing involves knowing the risk assessment and control strategies.
Risk assessment of market-based pricing
When knowing much about market-based pricing, it is clear that you must understand how to keep it under control and all the risks associated with the strategy. In such a context, it is essential to take a closer look at all the factors that can turn a market-based pricing strategy into a price war to avoid this from happening. The critical issue originates from the desire to track down as many competitors as possible. To tackle this problem, use advanced pricing algorithms, the ones determining competitors having the most impact on your pricing strategy. As a result, with sophisticated pricing tools, you will get the data you need and avoid starting a price war.
The bottom line
Market-based pricing is an excellent opportunity to survive the economic downturn. The approach uses competitors’ data to understand how a retailer can boost sales and increase profits. However, you must remember that market-based pricing comes with an excellent opportunity to survive the economic downturnpends on your pricing software.
