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Price competition is the process of setting competitive prices to achieve objectives in a market. All firms, brands, products and services need to set prices that are attractive to their target market relative to the competition. The following are common types of price competition.
When a firm sells a product in a foreign market cheaper than the normal price to try to put competitors in that nation out of business.Setting a price abnormally low to put a competitor out of business or discourage potential competitors from entering your market. A dubious strategy that is considered anti-competitive behavior that is prohibited by law in many jurisdictions.
Loss LeaderA shop or ecommerce site that sells a number of items cheaply to attract customers in the hopes they buy full price items when they visit or in the future.A low price for a new brand or product that is seeking to gain their first customers and establish brand awareness. Inventory ClearancePrices designed to clear inventory that is unpopular or soon to be out of season.
A product that isn't seen as high quality by customers may have no other way to position their product than by offering the lowest price.Umbrella PriceA price set by a high quality product or service that has strong customer demand. Weaker competitors need to set prices below the umbrella price or demand for their product will fall towards zero.
Commodity prices are set by the supply and demand in a market. Individual firms have little or no influence over prices and must accept the market price to sell.Brands, products and services that are viewed as high quality by customers. Implies a firm that has discipline in pricing such that they don't lower prices for a quick short term gain but are interested in maintaining their premium image. Premium pricing is still competitive. For example, a luxury hotel might need to beat the price of a nearby competitor that is viewed as more luxurious.|
| Type | | | Definition | The process of setting competitive prices to achieve objectives in a market. | | Related Concepts | |
Pricing
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