External Factors: Competitive and Other Products

Marketers will undoubtedly look to market competitors for indications of how price should be set. For many marketers of consumer products, researching competitive pricing is relatively easy, particularly with the help of internet search engines, searching retailers’ websites, and using price comparison apps. Price analysis can be somewhat more complicated for products sold in the business market. This is because final price may be affected by a number of factors including whether competitors allow customers to negotiate the final price.

Analysis of competition will include pricing by direct competitors, related products, and primary products.

  • Direct Competitor Pricing – Almost all marketing decisions, including pricing, will include an evaluation of competitors’ offerings. The impact of this information on the actual setting of price depends on the competitive nature of the market. For example, products that dominate markets and are viewed as market leaders may not be heavily influenced by competitor pricing, since they are in a commanding position to set prices as they see fit. On the other hand, in markets where a clear leader does not exist, the pricing of competitive products will be carefully considered. However, marketers must not only limit research to competitive prices. They must also pay close attention to how these companies will respond to the marketer’s pricing decisions. For instance, in highly competitive industries, such as gasoline or airline travel, competitors may respond quickly to competitors’ price adjustments, thereby reducing the effect of such changes.
  • Related Product Pricing – Products offering new ways for solving customer needs may look to pricing of products that customers are currently using even though these other products may not appear to be direct competitors. For example, a marketer of a new online golf instruction service that allows customers to access golf instruction via their computer may look at prices charged by local golf professionals for in-person instruction to gauge where to set their price. While, on the surface, online golf instruction may not be a direct competitor to a golf instructor, marketers for the online service can use the cost of in-person instruction as a reference point for setting price.
  • Primary Product Pricing – As we discussed in the Product Decisions Tutorial, marketers may sell products viewed as complementary to a primary product. For instance, Bluetooth headsets are considered complementary to the primary product cellphones. The pricing of complementary products may be affected by pricing changes made to the primary product since customers may compare the price for complementary products based on the primary product price. To illustrate, companies selling accessory products for the Apple iPad may do so at a cost that is only 10 percent of the purchase price of the iPad. However, if Apple decided to drop the price dramatically, for instance by 50 percent, the accessory at its present price would now be 20 percent of the of iPad price. This may be perceived by the market as a doubling of the accessory’s price. To maintain its perceived value, the accessory marketer may need to respond to the iPad price drop by also lowering the price of the accessory.
External Factors: Elasticity of Demand
External Factors: Customer Expectations