What Does Competitive Pricing Mean? Setting the price of a product or service based on what the competition is charging.

Competitive pricing is used more often by businesses selling similar products, since services can vary from business to business while the attributes of a product remain similar. This type of pricing strategy is generally used once a price for a product or service has reached a level of equilibrium, which often occurs when a product has been on the market for a long time and there are many substitutes for the product. Investopedia explains Competitive Pricing Businesses have three options when setting the price for a good. They can set it below the competition, at the competition or above the competition. Above the competition pricing requires the business to create an environment that warrants the premium, such as generous payment terms or extra features. A business may set the price below the market - and potentially take a loss - if it thinks that a customer is more likely to buy other products as well.

A price lower than that offered by the competitors, or a price made more attractive because of added incentives, such as longer payment terms.

Competition-based pricing
Setting the price based upon prices of the similar competitor products. Competitive pricing is based on three types of competitive product:

Products have lasting distinctiveness from competitor's product. Here we can assume o The product has low price elasticity. o The product has low cross elasticity. o The demand of the product will rise. Products have perishable distinctiveness from competitor's product, assuming the product features are medium distinctiveness. Products have little distinctiveness from competitor's product. assuming that: o The product has high price elasticity. o The product has some cross elasticity. o No expectation that demand of the product will rise.