Competitor Index Pricing

Description

Set your prices based on a numerical index that has been derived from detailed market research, in particular of the prices your competitor charges.

Methods used can include direct price matching or setting the price a percentage above or below the index price. Whether the price is set above or below the index will depend on other factors including brand strength, product functional comparison and persuasiveness of sales people. You may also want to consider how competitors will respond to your prices.

Example

A small law firm creates a pricing structure for their services based on a review of prices from major practices, with a reduction from this index of 5% to take into account their lower operational costs and weaker brand strength.

A computer company puts a lot of effort into sleek design and positions their products as fashion icons. In doing so they can sell at 30% above the industry average for similar functionality systems.

Discussion

Basing price just on competitor prices is on one hand simple and on the other hazardous as it does not take into account other factors that customers use when selecting which product they will buy, including brand, functionality and convenience. The variance from the base index should take account of this.

This method is often used by smaller companies who index from major player pricing to ensure they are 'compatible' in the prices they charge. Setting the price variance from the index value is intended to send a message to customers, typically about how their products are greater value or higher quality.

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Competitor Index Pricing

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