MADE BY

DIVYANEET KAUR
NIKITA AGRAWAL
An organisation has various options for selecting a pricing method. Prices are

based on three dimensions which are :

1. Cost

2. Demand

3. Competition.
Competition-based pricing is a pricing method that makes use of competitors' prices for the same or similar
product as basis in setting a price.

• Acts As a Benchmark - The price of competing products is used as a benchmark. The business may sell its
product at a price above or below such benchmark.
• More Extra Efforts - When sellers adopt the same price as those charged by competitors, certain marketing
efforts must be made to attract sales since price is not a major factor; it is neither an advantage nor a
disadvantage. Additional efforts include aggressive advertising, better customer support, market saturation,
etc. (Pepsi , Coke, Thums Up)
• It can be accurate - In saturated industries like retail, competitor based pricing can be fairly accurate. After all,
for most consumer products there are millions of customers and enough data to move pricing closer towards
a market based methodology. Unfortunately, software doesn’t tend to have this same luxury.
• Note - In a perfectly competitive market, sellers almost have no control over prices. It is solely determined by
the supply and demand, and products are sold at the market price or going rate.
Coca-Cola has a very large product category including different type of cola
drinks, energy drinks, juices and so on. This also applies to Pepsi, which
operates additionally in the food business. King of the cola drinks is definitely
the Coca-Cola Classic, which is the most sold soft drink in the world. It comes
with a lot different flavors as well like lemon, cherry and vanilla. Another
significant cola products of this leading company are Coca-Cola Light and
Coca-Cola Zero. Archenemy’s most famous product is the regular Pepsi that is
number two in the soda markets. Pepsi has developed a lot of variations from
its primary cola too and the company has a strong positioning on diet cola
markets as well.
• Both Coca-Cola and Pepsi are facing competition on cola markets, but mostly from each
other. These two leaders are dominating the market and the existing situation is called
oligopoly. This means that companies have more pricing power than if they were
operating in perfect market circumstance. It is clear that their pricing is highly influenced
by competition, because Coke and Pepsi are almost perfect substitutes.
• Therefore, if Coca-Cola increases its price, many of its customers will start to consume
Pepsi. Coca-Cola’s pricing is based on the value that its products create to customers in
different situations. That’s why Coke’s price per liter can variate depending e.g. on the
packaging or location.
• Pepsi is taking this value based pricing strategy a bit further with their “Hybrid Everyday
Value” model. This pricing strategy is an effort to make customers buy Pepsi not only
when it is on sale. It’s expected that Coca-Cola might try some kind of similar pricing
model if Pepsi succeeds with their own, although Coca-Cola’s pricing is nowadays slightly
more aggressive.
This Pricing Method Includes :-

1. Premium Pricing :- Premium Pricing means above the level adopted by the competitors.

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2. Discounted Pricing :- Discounted Pricing means below the level adopted by the competitors.
3. Going Rate Pricing :- Going Rate Pricing means selling at the level adopted by the competitors.

4. Tender Pricing :- In this method the seller tries to base the price of bid on the basis of the competitor’s price. It’s
more applicable to industrial product and the products or services purchased and contracted by institutional
customers. Such customers usually go by competitive bidding through sealed tenderiser by quotations.
 1. Easy Market Research - This method is simple because competitors’ prices are most often publicly displayed
and it is therefore easy to analyze them.

2. Avoid the trial and error costs - By setting the same price as its competitors, a newly-launched firm can avoid
the trial and error costs of the price-setting process. However, every company is different and so are its costs.
Considering this, the main limit of the competitive pricing method is that it fails to account for the differences in costs
(production, purchasing, sales force, etc.) of individual companies. As a result, this pricing method can potentially
be inefficient and lead to reduced profits.

For example, a firm needs to price a new coffee maker. The firm’s competitors sell it at 100, and the
company considers that the best price for the new coffee maker is 100. It decides to set this very price on
their own product. Moreover, this pricing method can also be used in combination with other methods such
as penetration pricing for example, which consists of setting the price below that of its competition (for
instance, in this example, setting the price of the coffee maker at 85).
3. Gain Market Share - If a firm wants to gain market share, then its objective is to have one of the lowest
prices on the market. On the contrary, if a firm wants to create a successful brand image, it would be more
effective to sell higher-priced products In order to communicate a signal of quality to its consumers.Moreover,
this pricing method is often used within well-established and highly competitive markets.

4.This method carries low-risk - If the prices used by competitors do not lead them to bankruptcy, it will likely
be the same for other firms on the market too. And while there could potentially be some punctual
inefficiencies (on one specific product) resulting from this method which could then spread to the entire
market, such situations are rare.

5.This method leads to equilibrium - In the retail industry, there are millions of customers and millions of sales
that take place every day. Therefore, assuming that most retail players on the market are using the
competitive pricing method, the entire market can reach a stabilized equilibrium price.
1. Works On Identical Products - Competitive pricing only works when the products sold by different firms to
the same customers are pretty much identical. On the contrary, if products are just partially similar and are not
exactly identical, then the price is hardly transferrable from one product to another.

In this regard, the main challenges pertain to defining one’s competition, establishing congruency between
products as well as collecting and analyzing data.

2. Competitors’ prices can lead to setting a non-optimal price - Some companies must deal with fixed costs that
are higher than their competitors’, meaning that they may potentially need to sell larger product volumes in
order to amortize the fixed costs in question. Therefore, when using competitive pricing and setting the same
prices as their competitors (who do not necessarily have the same fixed costs), these companies can find
themselves in a situation where they are making a suboptimal level of profit. Taking a slightly different example,
if a competitor sets an incorrect price purely due to human error (for example, adding an extra zero by mistake
and setting the price at $1400 instead of $140), the wrong “competitive” price would obviously be suboptimal.
3. Competitive pricing is used by virtually every player on the market - The market can become static as a
result, and if the market price equilibrium is suboptimal, the profit of the entire market will be reduced. The
price will remain at the same “competitive” level until profits reach a null value.

4. Aggressive competitive pricing can lead to a race to the bottom - For example, a firm can decide to employ
an aggressive pricing policy with a mix of competitive pricing and penetration pricing by setting the price 10%
lower than its competitors. If another competitor decides to do the same thing, the overall market price will
slowly decrease and the profits will decrease too. The new equilibrium will be one with lower profits and thus
largely suboptimal.

5. Competitive pricing can also lead to a race to the sky - For example, Amazon sells “printed on demand”
books which web crawlers (that also operate on the Amazon Market Place) can then sell at a higher price. If
a customer is willing to pay the higher web crawler price, the web crawler will simply buy the book from
Amazon and make profit on the Amazon price. As a result, the web crawler intending to maximize his profit
will set his price higher and higher, and other web crawlers will use the competitive pricing method to set the
same higher prices which will in turn lead to a race to the sky.
CASE STUDY WHERE COMPETITION BASED
PRICING COULD HAVE HELPED
CASE STUDY ON JET AIRWAYS
 MARKET SHARE

It took the last flight on 17th April 2019, as it was facing losses.
REASONS FOR DOWNFALL OF JET AIRWAYS
1. Poor Management
2. Costly Purchase
3. Failure to attract investors
4. Not Placing Itself in The Competitive Aviation Industry
5. Low Cost Airlines Started Competing
Jet Airways was founded on 1st April 1992, a full service
airline which had the most market share till 2005 and now
has currently been suspended.

After 2005, Low Budget Airlines came into play and so, it
started suffering as most of it’s audience preferred other
airlines over it.

They started suffering losses and made them public since

2016 and finally got it’s flights suspended.
It’s important to know your customers and your services. It’s also important to
know how you sell your services and place yourself in the market. You should
know your competition while reaching to your customers.
• Center for Strategic & International Studies (CSIS), “Defense industrial
initiatives. Current issues : Cost-plus Contracts”
• Guilding C., Drury C. & Tayles M., “An empirical investigation of the
importance of cost-plus pricing”
• Hanson W., “The dynamics of Cost-plus Pricing”, Managerial and
decision economics, vol. 13, 149-161, 1992