Key Takeaways
- Use price benchmarking to understand competitor pricing, market position, and potential pricing gaps.
- Look inward as well as outward: analyse your own costs, margins, and pricing data before reacting to competitors.
- Follow a structured benchmarking process: plan, analyse competitor data, and implement pricing improvements.
- Use competitive intelligence and automation to keep pricing data accurate and respond quickly to market changes.
- Treat price benchmarking as a tactical input, not a long-term pricing strategy. Combine it with customer value, costs, and margin analysis to make stronger pricing decisions.
Why is it important for businesses to compare prices to that of the competitors’ prices in a specific market segment? Will price benchmarking truly help you make a bigger profit?
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Understanding pricing and your position relative to the competition is vital to a flourishing business. This is very significant to pricing managers and analysts who are trying to keep up with incessant fluctuations in the e-commerce environment. Knowing your pricing and position in the market effectively places your business in such a way that customers will choose to buy and pay for your products.
This is what price benchmarking does. Price benchmarking looks outward. However, if you want to achieve optimal profit, you need to look inward first.
For example, take a look at the data within your company. Maybe the real gold is in your purchase parts. Use the existing data you have and compare the costs of purchased parts that your business has incurred for the last two years. This data will enable you to really increase your margin despite competitor pricing.
In this article, we will discuss in more detail the price benchmarking process. We will explain when and how to use price benchmarking. What’s more, we will go through the advantages and disadvantages of the price benchmarking process. By the end of this article, you’ll understand how to use competitive intelligence in the price benchmarking process.
What are the 3 steps in the price benchmarking process?
The price benchmarking process can be broken into three simple steps:
- Planning: Select the right benchmarking process and determine which competitors to compare. These may include brick-and-mortar stores, online retailers, or both.
- Analysing: Gather pricing data from competitor websites or stores and analyse it to identify pricing information and process gaps.
- Implementing: Use the analysis to create improvement strategies, review progress, and set prices accordingly. Clear price benchmarks can help businesses make better pricing decisions.
The process helps businesses compare their prices with competitors, understand their position in the market, and use competitive pricing information when making pricing decisions. However, price benchmarking is a tactical process rather than a long-term pricing strategy, so businesses also need to consider their own costs, customers, market position and pricing capabilities.
Before applying these three steps, it is important to understand exactly what price benchmarking involves and when businesses should use it.
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What is the price benchmarking process?
The price benchmarking process is the act of comparing the prices you pay for products to the prices of other supplier companies or competitors on a like-for-like basis. Whether it is a one-time price comparison or a routine performed at regular intervals, the process enables the purchasing team to make more informed and better buying decisions. The process is also used as an input to inform later price-setting decisions for new products.
A lot of companies consider price benchmarking as an essential activity of the business. They want to find out how their prices compare to the bigger marketplace and their closest competitors. However, the price benchmarking process is no easy feat even though pricing information is more widely available than in the past. For example, businesses can search the web and use web crawling. It is difficult to stay up-to-date since prices are dynamic and ever-changing.
Let’s provide you with an example of what price benchmarking is, so you’ll understand it better. Say, for instance, you opened a hardware store. Then you overpriced your products and experienced a drop in foot traffic because your customers went to a cheaper hardware shop a few doors down. Because your customers went to a cheaper hardware shop a few doors down. The primary reason for a drop in traffic and revenue is a lack of awareness of pricing in your area.
But the problem is that by the time you adjusted your prices to make them right, word had already spread that your store was overpriced, and customers simply do not want to visit your shop again. This problem could have been avoided at the beginning if you had used pricing benchmarks to discover the sweet spot and priced your products accordingly. In today’s competitive market, having prices right is very important, especially as both online and offline stores fight to win market share and share of wallet is now more important than ever.
When and how to use the price benchmarking process?
To a large extent, when a business decides on the competitive pricing strategy, the need for price benchmarking arises. A business can use pricing benchmarks to set prices for their own products, simply by just observing other businesses or competitors based on their popularity and the quality of their offerings, while keeping in mind the business’s market position relative to its competition.
Utilising price benchmarking while balancing competitive pricing with revenue is just one way to incorporate it into your business operations. A clever business will use it to evaluate and discover both new and existing ways to enhance its pricing methods. It can also be used to implement processes that aid in scaling and growing the brand’s presence.
Price benchmarking is vital when entering a new market. Join the group with competitive prices and have customers get hooked to your product, and with your superior offering, set higher prices to show the value differential between products and between you and your competitors.
The Price Benchmarking Process
Smart businesses assess and recognise innovative ways to achieve improvements in their pricing strategies. They also establish robust processes that will improve brand presence and equity in the international market. Price benchmarking is a vital tool in determining prices and also evaluating the positioning of big market competitors.
So, what’s the process of price benchmarking? The process is rather simple.
- Planning. A standard price benchmarking scheme includes planning (selecting the right process) and determining the competitors. They could be brick-and-mortar stores or online retailers.
- Analysing. It involves data-gathering and identifying process gaps. Extract pricing data from your competitors’ websites or stores, and analyse it.
- Implementing. This step includes creating and putting into effect improvement strategies and also reviewing progress. After analysing the data, you can now set the prices of your goods accordingly. Setting clear price benchmarks is favourable in many ways. It’s helpful in deciding the perfect pricing for your products.
This simple three-step process of price benchmarking is a very effective competitor-based pricing strategy.
Competitive intelligence: Achieving the Price Benchmarking Process
Definitely, price benchmarking is a useful tool in determining prices to attain greater profit value for the business. It also allows a pricing team to gauge the market rivals’ competitiveness and protect margins in times of increasing price pressure. In addition, price benchmarking is a good way to identify any performance gaps in price operations. But, ultimately, price benchmarking is a tactical process, not a long-term strategy.
How is the whole process really achieved, though? The answer is – competitive intelligence.
Competitive intelligence is a huge field of information that takes a lot of time to translate into helpful insights. However, competitive intelligence tools can help businesses collect and analyse this information more efficiently in today’s fast-developing business market. The reasons are listed below:
Provides real-time data
Fast developments in the business sector also create rapid changes to all aspects of the business, which is why real-time insights are crucial. Real-time data provide businesses with a current view of the market. They make businesses aware of what their rivals are doing. This gives them a highly competitive advantage. Real-time insights can provide a more current view of competitor prices, with regular updates helping businesses monitor changes across the marketplace.
Monitors competitor data and competitive market
Competitive intelligence tools provide highly relevant and detailed data. This means a business can track competitor prices in real time and compare related products among competitors. Consequently, the company can optimise its prices.
Automates competitor benchmarking completely
Competitive intelligence tools can automate much of the competitor benchmarking process. As a result, these tools allow a business to save time that it can utilise for other matters.
Benefits and Drawbacks of Price Benchmarking
The price benchmarking process provides a clearer sense of the market. However, it does have its pros and cons. Let’s discuss the advantages and disadvantages of using price benchmarking.
Advantages
- Pricing benchmarks verify the pricing strategy and policy of a business. It also helps identify the factors behind a particular price, such as the costs and other expenses of the competitor.
- Price benchmarking ensures the operation is feasible when entering a new market. It provides an outline of the financial feasibility of such a venture since entering a new market involves cost estimates of operating in particular locations.
- It helps with price optimisation. It also guarantees competitive pricing at all times since the process indicates actual prices (not underpriced or overpriced).
- It provides more time for companies to focus on other important matters in business operations. This is especially useful because, with price benchmarking through pricing intelligence, a business need not conduct detailed research on its own to determine what customers are paying for.
Disadvantages
- Data sources need to be kept up to date at all times to make sure that you remain competitive because many online and offline stores regularly update their prices based on market factors and availability.
- Data gathering from online sources is not an easy task when dealing with thousands or millions of products across hundreds or thousands of subcategories. Use web scraping techniques with the help of experienced data providers in order to get a clearer picture of online pricing tactics.
- Automation plays a very significant role. Automating several data collection and analytics-based processes helps make the decision-making process more efficient.
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Implications
- Price benchmarking can either make or break a business. By carefully examining the pricing irregularities in the global market, companies can reevaluate their prices. They can then go to the market with a powerful brand value proposition to challenge competitor brands.
- Price benchmarking can help your business to gain useful insights into several cost aspects. It can also identify serious forces that affect organisational pricing models.
- It also helps a business to closely monitor the prices that its immediate competitors are setting or charging for similar offerings. Systematic market intelligence on the competitors can guide a business in benchmarking its pricing with that of the rivals and carrying out optimal pricing strategies.
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Conclusion
Price benchmarking helps determine what your customers are willing to pay for your products. It also helps you monitor market dynamics in a more systematic way. In this article, we’ve shown how competitive intelligence tools give valuable price and customer insights about both the market and the competition, while saving the company money and time and reducing risk.
Price benchmarking is an essential business process for any pricing department. But it’s not strategic pricing. Yes, a business wants to master the process to improve price setting and tactical responses to price pressure. However, price benchmarking requires investment like everything else. You need good people, systems and processes to maintain an accurate process.
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