7 Competitive Pricing Strategies Every Business Should Know

In a previous post, we explored how pricing psychology influences what we buy — from decoy pricing and anchoring to the mysterious power of .99 endings.

Today, we’ll go a step further and examine how businesses strategically set prices to stay competitive and profitable in a world where millions of products fight for your attention.

With over 2–3 million e-commerce sites worldwide (excluding China) and more than 1.3 million in North America alone, companies need more than just intuition to price their products effectively. Successful pricing isn’t guesswork — it’s strategy.

In this post, you’ll discover seven competitive pricing strategies used by smart companies to survive and thrive in competitive markets. You’ll learn new Business English vocabulary, explore real-world brand examples, and see how AI and data analytics are transforming modern pricing decisions.

Let’s dive in.

🧠 Vocabulary Builder

• Profit margin – the percentage of profit earned after costs are deducted

• Fixed costs – expenses that stay the same regardless of production (e.g. rent, salaries)

• Variable costs – expenses that change with sales or production volume (e.g. materials, shipping)

• Market positioning – how a company presents itself compared to competitors

• Dynamic pricing – adjusting prices based on demand, competition, or time

• A/B testing – comparing two versions of a product or price to see which performs better

• Competitive advantage – the factor that makes a company stronger than rivals

• Consumer perception – how customers view a product’s quality, value, or brand

• Localisation – adapting pricing or marketing to suit regional markets

• E-commerce – the buying and selling of goods online

💼 The Art and Strategy of Competitive Pricing

Pricing is one of the most powerful levers in business. It communicates value, signals brand identity, and directly determines profit. Yet, it’s also one of the hardest decisions to get right.

As marketing experts often say:

“If you price too high, you lose customers. If you price too low, you lose profit.”

Competitive pricing isn’t about copying your rivals — it’s about understanding where your business fits in the market, what customers expect, and how you can stay sustainable.

Below are seven proven strategies that help businesses find that balance.

1️⃣ Know Your Local Competition

Every pricing strategy begins with research. Whether you run a global e-commerce brand or a local coffee shop, you must know your competitors’ prices.

Even in the digital age, local pricing matters. 50% of consumers say they still prefer to shop in person, and 80% of them compare those prices online before buying.

This means you can’t ignore what’s happening in your region. For example:

• A local bakery may discover that nearby competitors offer a “buy 5, get 1 free” deal — and adjust its own strategy accordingly.

• A regional gym might price memberships slightly lower during winter to attract new members when attendance typically drops.

🔹 Business Example: Starbucks practices competitive localisation. Prices vary by region to reflect costs and competition. A latte in New York may cost more than in Madrid — but the perceived value stays the same.

2️⃣ Understand the Online Market

Beyond local competition, companies must analyse the global online marketplace.

Today’s consumers can compare thousands of products with one click. According to data from eRank Solutions, more than 90% of buyers check prices online before making a purchase — even if they plan to buy offline.

To stay relevant, successful brands study how others price similar products. They also use price tracking tools and analytics to monitor competitor adjustments.

For example, Amazon uses AI-driven dynamic pricing that updates millions of prices every 10 minutes based on real-time supply, demand, and competitor data. This strategy keeps Amazon both competitive and profitable, ensuring customers always see “the best deal.”

💡 Tip: In the age of e-commerce, understanding your competitors online isn’t optional — it’s survival.

3️⃣ Define Your Brand Position

Before you can set a price, you must decide what your brand stands for. Do you want to be known for affordability, luxury, or value-for-money?

This is called market positioning, and it determines the story your price tells.

Consider these examples:

• IKEA positions itself as affordable design for everyone. Its pricing supports that message — functional, stylish, and cost-effective.

• Apple, on the other hand, uses premium pricing to signal exclusivity and superior quality. The price becomes part of the brand identity.

Defining your brand position helps you communicate with consistency. You can’t be the cheapest and the most luxurious at the same time — your customers will sense the confusion.

Ask yourself:

“What do I want to be known for — price, quality, or experience?”

Once you know the answer, your pricing decisions become much clearer.

4️⃣ Assess Your Costs

Before making any pricing decisions, you must know your cost structure. Every company has fixed costs (e.g., rent, salaries, website hosting) and variable costs (e.g., production materials, packaging, shipping).

If you don’t fully understand your costs, you risk setting prices that fail to cover expenses — a common mistake among startups and small businesses.

Let’s illustrate:

• If it costs $60 to make a product and you sell it for $80, your profit margin is 25%.

• However, if your production or shipping costs rise, your profit margin shrinks unless you adjust the price.

That’s why pricing should never be static.
As your costs change, your pricing strategy must evolve.

🔹 Example: During the pandemic, logistics costs rose sharply. Many small retailers increased prices slightly or offered free shipping only for higher-value purchases to maintain margins.

Bottom line: To make smart pricing decisions, you must know exactly how much it costs to run your business — and how much profit you aim to make.

5️⃣ Determine Your Profit Margin

A profit margin represents how much money you keep from each sale after paying costs. It’s usually expressed as a percentage.

Let’s look at a simple formula:

Profit Margin (%) = (Selling Price – Cost) ÷ Selling Price × 100

If you sell a product for $100 and it costs $70 to produce, your profit margin is 30%.

But not all industries operate with the same margins.

• Clothing brands may have margins between 4% and 13%.

• Technology or luxury goods can enjoy 30–50% margins.

• Supermarkets often work with thin margins but high sales volume.

Successful businesses track these numbers closely and adjust prices to protect profitability without alienating customers.

🔹 Example: IKEA keeps margins low but sells in massive volume. This combination — low margin, high turnover — ensures steady profit and affordability.

💬 Key lesson: High prices don’t always mean high profits; it’s about finding the balance between value and volume.

6️⃣ Adjust for Seasonality

Not all demand is constant. Some products sell better during specific times of the year. Understanding seasonal pricing helps companies stay profitable during both high and low periods.

For instance:

• Ice cream sales soar in summer and drop in winter.

• Travel companies raise prices during holidays and lower them during off-peak months.

This is where dynamic pricing — adjusting prices based on demand and timing — becomes a powerful tool.

🔹 Real-World Example: Airlines and hotel chains use sophisticated algorithms to adjust prices daily. The closer you get to the travel date, the higher the price — unless demand drops.

Even small businesses can apply the same idea. A local bakery might offer discounts on unsold pastries in the evening to reduce waste and attract evening customers.

Key idea: Adjust your pricing like a thermostat — flexible, responsive, and data-driven.

7️⃣ Test and Refine with A/B Testing

The final strategy is about experimentation. In marketing, we rarely get everything right on the first try — which is why A/B testing is so valuable.

A/B testing means comparing two versions of something (A and B) to see which performs better. You can test:

• Two different price points

• Two discount levels

• Or even two product bundles

Online businesses use this method to make data-driven decisions.

🔹 Example: A digital course provider might offer one group of users a course for $49 and another for $59. If more people buy the $59 version, the higher price becomes the winner.

This technique also helps companies understand price elasticity — how sensitive customers are to changes in price.

💡 Business Insight: Why A/B Testing Matters
A/B testing turns guesswork into evidence. By testing real user behaviour, companies can optimise pricing, messaging, and promotions for maximum results.

🌐 The Future of Pricing: Data and AI

In the past, pricing decisions were based on instinct. Today, they’re guided by data analytics, machine learning, and real-time algorithms.

Modern businesses use AI-based dynamic pricing systems that automatically adjust prices according to demand, competition, and even weather.

🔹 Example: Uber’s surge pricing adjusts fares in real-time based on rider demand and driver availability. It’s a controversial model, but it ensures service availability and incentivises drivers.

🔹 Example: Amazon changes prices on popular items multiple times a day, ensuring it remains the most competitive seller while still maintaining margins.

As AI continues to evolve, pricing will become even more precise, responsive, and personalised. However, the foundation remains the same: understanding your customer and delivering value.

📊 Check Your Understanding

1. What is the main purpose of competitive pricing?
a) To copy competitors exactly
b) To set prices that balance value, cost, and competition
c) To lower prices below cost

2. Which company is famous for AI-driven dynamic pricing?
a) Apple
b) Amazon
c) IKEA

3. What are fixed costs?
a) Costs that change with production
b) Costs that remain constant regardless of sales
c) Costs only for marketing

4. Which pricing strategy involves testing two versions to find the best result?
a) A/B testing
b) Price anchoring
c) Premium pricing

5. What does “profit margin” measure?
a) Total sales
b) Revenue after all costs are deducted
c) Brand awareness

Answer Key:

1. b 2) b 3) b 4) a 5) b

💬 Discussion Prompts

1. Which pricing strategy do you think is most important for startups? Why?

2. How does understanding your competition help in setting fair prices?

3. Can you think of a company in your country that uses dynamic pricing?

4. Would you prefer a business to focus on low prices or high quality? Why?

🌱 Reflection

Competitive pricing isn’t about winning a price war — it’s about knowing your market, your customers, and your value.

Each strategy — from researching competitors to testing ideas — helps businesses remain adaptable and resilient in a fast-moving world.

In the end, successful pricing combines logic, creativity, and empathy. Numbers matter, but understanding people matters more.

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