Competitive Pricing Strategies

There are three main types of competitive pricing that is used in businesses at present.

Low Price
This is when a firm charges a lower price than the competition.
It is used to create interest and awareness. This in turn will boost sales.
It works best when customers are not very loyal to any particular brand and in markets that are price sensitive (meaning that they are highly responsive to changes in price)
It is often used in highly competitive markets, not a good idea to be used in markets with one or two main competitors.


Penetration Pricing
This is used when entering a new market and is set very low, sometimes at a loss.
This can generate high sales and a large market share very quickly.
Once the firm is established, the price may well go back up.

Destroyer Pricing or Predatory Pricing
This is used normally in existing and highly competitive markets. It is actually illegal as it is deliberately used to eliminate competitors.
Large firms often do this to get rid of small or medium sized competitors. Large firms can take losses for longer and once the small firm has went bust, they can absorb their customers and revenue.
Markets that have firms using destroyer pricing are often seen as high risk and may put off new entrants to the market.