Competitor-Based Pricing – How to Apply It

When pricing a product or service, many businesses ask themselves a simple question: “What are my competitors charging?” This question forms the core of competitor-based pricing, a strategy that benchmarks your prices against those of similar offerings in the market. Used correctly, competitor based pricing example of which we will discuss further, can be a powerful way to align with customer expectations, stay relevant in a competitive space, and position your product effectively. However, it also comes with risks—particularly if implemented without understanding the broader context of your value proposition, costs, and target audience.

In this article, we’ll explore how to apply competitor-based pricing, walk through a real-world competitor based pricing example, and explain how this model compares with data-driven methods such as pricing analytics. Whether you’re launching a new business or refining your pricing model, this guide will help you make smarter decisions based on your competitive landscape.

What is Competitor-Based Pricing?

Competitor-based pricing (also called competitive pricing) is a strategy where businesses set their prices based on what competitors are charging for similar products or services. Instead of focusing solely on cost or customer value, this model assumes that market prices already reflect what buyers are willing to pay.

Companies using this strategy typically choose one of three pricing positions:

• Price matching: Aligning prices with the average or most popular competitor
• Price undercutting: Offering lower prices to attract price-sensitive customers
• Premium pricing: Charging more to signal higher quality, better features, or stronger brand

This strategy is especially popular in saturated markets where product differentiation is limited and customers compare options side by side. Competitor based pricing example we will discuss further to improve the understanding.

Why Use Competitor-Based Pricing?

There are several reasons businesses adopt this strategy:

Market Alignment

Pricing based on competitor benchmarks helps ensure that your product or service is positioned in a way that makes sense to your target audience.

Quick Entry Strategy

For startups or new product launches, competitor-based pricing provides a fast way to enter the market without exhaustive research or trial-and-error pricing experiments.

Increased Conversion Rates

Customers are more likely to buy when your pricing feels “right” compared to others. Competitive pricing avoids being too high or suspiciously low.

Risk Mitigation

When you don’t have enough data or historical trends, using your competitors’ prices as a starting point minimizes the risk of overpricing or undervaluing your offer.

Competitor Based Pricing Vs Dynamic Pricing

Competitor based pricing and dynamic pricing are often confused, but they serve different purposes. Competitor based pricing relies on monitoring what rivals are charging and setting your own prices in line with them. For example, if several local gyms charge $50 per month, a new gym might set its price at $48 to stay competitive.

Dynamic pricing, on the other hand, is more flexible and data-driven. Instead of only looking at competitors, it takes into account factors like customer demand, seasonality, inventory levels, and even time of day. A clear example is the airline industry: ticket prices can change multiple times a day depending on demand for a specific route.

The key difference is that competitor based pricing is more static and externally focused, while dynamic pricing is adaptive and often powered by algorithms. If you want to align with your industry and avoid appearing overpriced, competitor based pricing works well. If you want to maximize revenue by adjusting prices in real time, dynamic pricing is the stronger choice.

For a deeper breakdown of how flexible pricing works in practice, you can explore our guide on dynamic pricing strategy examples and best practices.

Competitor Based Pricing Vs Dynamic Pricing

Choosing between competitor based pricing and dynamic pricing depends on your business goals and industry. If you are entering a crowded market and need to stay aligned with what others charge, competitor based pricing is a straightforward approach. But if you operate in a fast-moving sector where demand changes frequently, dynamic pricing gives you the flexibility to optimize revenue in real time. Many successful companies combine both strategies — monitoring competitor benchmarks while also applying dynamic adjustments when demand shifts. For more insights on building flexible strategies, you can explore our guide on pricing analytics and how data improves your pricing.

Competitor Based Pricing Example: Streaming Services

Let’s look at a real-world competitor based pricing example using streaming platforms:

• Netflix Standard Plan: $15.49/month
• Hulu No Ads Plan: $17.99/month
• Disney+: $13.99/month
• Max (formerly HBO Max): $15.99/month

A new streaming platform entering the market might set its pricing between $13 and $16 to remain competitive. By positioning just under Netflix, they can appear affordable while still maintaining a perception of value.

However, if the service offers fewer features or has a smaller library, the pricing may need to reflect that. Conversely, if the new platform includes exclusive content, it may justify a slightly higher price, following a premium competitor-based strategy.

Steps to Apply Competitor-Based Pricing

1. Identify Your Direct Competitors

Your competitors are not just any company in the same industry—they are businesses targeting the same audience, solving the same problem, or offering similar features. For accurate benchmarking, focus on companies with comparable positioning, brand recognition, and product functionality.

2. Gather Pricing Intelligence

Collect data from:

• Websites and product pages
• Customer reviews and forums
• Price comparison tools
• Surveys or interviews

Track base pricing, discounts, subscription plans, bundled offers, and any usage-based components. Also pay attention to value-adds such as onboarding support, customer service quality, or access to premium features.

3. Segment the Market

Your market is likely composed of different customer segments with different needs. Group your competitors by pricing tier, feature set, and target audience. This helps you understand not only how much they charge, but who they’re charging it to.

4. Choose Your Pricing Position

Decide whether to match, undercut, or exceed competitor pricing. Your decision should reflect your value proposition and business goals. For example:

• If you’re launching a basic productivity app, undercutting might attract cost-conscious users.
• If you’re offering enterprise-level support or AI features, premium pricing might signal sophistication.

5. Monitor and Adjust

Pricing is never a one-and-done decision. Use tools and analytics to monitor how your pricing performs over time, especially in response to competitor changes, customer feedback, and shifts in demand.

This is where incorporating pricing analytics into your workflow is essential. It lets you track the impact of your competitive pricing decisions on conversions, revenue, and profitability.

Pros of Competitor-Based Pricing

Simplicity

This model is straightforward to implement, particularly for startups or smaller teams with limited resources for customer research.

Market Relevance

Competitive pricing helps you stay within a price range that customers expect, increasing the chances of being shortlisted or chosen.

Fast Benchmarking

You can quickly position your product in the market, even if you’re new or haven’t validated your pricing through experimentation yet.

Adaptability

This strategy allows you to react quickly to market shifts. If a major player adjusts their pricing, you can follow suit or use it as a promotional opportunity.

Cons of Competitor-Based Pricing

Ignores Customer Value

Basing prices only on competitors fails to account for the unique value you offer. You may miss opportunities to charge more—or lose money by charging too little.

Race to the Bottom

Trying to undercut competitors can spark a price war, leading to unsustainable profit margins and devaluation of your offering.

Doesn’t Reflect Costs

If your pricing is too low compared to your operating costs, you risk long-term unprofitability.

Assumes Competitors Got It Right

Just because a competitor chose a certain price doesn’t mean it’s optimal. They may be struggling with churn, poor margins, or mismatched positioning.

When to Use Competitor-Based Pricing

Competitor-based pricing works best when:

• Your market is mature and saturated
• Products are relatively similar in features and quality
• Customers often compare options directly
• You lack internal data to support value-based or cost-based pricing

It’s often used in combination with other models, especially in early product stages, when testing a new market, or during promotional campaigns.

Blending Competitor Pricing with Other Strategies

Competitor based pricing example of which we have provided above, does not need to stand alone. Many businesses achieve better outcomes by blending it with complementary pricing strategies. For example, competitor benchmarks can serve as a baseline while value based pricing highlights the unique benefits of your product. A software company might analyze competitor prices to set a starting point, then adjust upward if its features deliver more value than alternatives.

Another option is combining competitor pricing with cost plus pricing. This ensures you are aware of market expectations while still protecting profit margins. For instance, a clothing brand could calculate production costs, add a markup, and then compare the final price against competitors to make sure it stays competitive.

Dynamic pricing can also be layered with competitor analysis. Businesses such as e-commerce platforms often monitor competitor listings but still use algorithms to adjust prices in real time based on demand and inventory. This blended approach prevents losing customers to rivals while also taking advantage of market fluctuations.

The most effective strategy often depends on industry and business stage. Startups may lean more heavily on competitor insights to gain traction, while mature companies can afford to integrate customer value and analytics-driven adjustments. By blending competitor based pricing with other methods, businesses can remain competitive without sacrificing profitability or differentiation. Competitor based pricing example can serve as your starting point, with value or cost metrics helping refine the strategy.

Blended Pricing Strategies Framework

Tools to Support Competitor Pricing Analysis

If you’re implementing this strategy at scale, consider using:

• Prisync: Automates competitor price tracking
• Price2Spy: Monitors e-commerce pricing
• Google Alerts: Tracks changes in competitor pricing pages
• SEMrush or SimilarWeb: Offers insights on product positioning and market share

FAQ: Competitor Based Pricing

What Is A Competitor Based Pricing Example?
A competitor based pricing example is when a company sets its prices by directly referencing the prices of rivals in the same market. For instance, if two coffee shops in the same neighborhood both sell cappuccinos, one might decide to price slightly below the other to attract more customers. Another example is an online clothing store that adjusts its prices to match or undercut well-known fashion retailers.

How Do Businesses Use Competitor Based Pricing In Practice?
Businesses often monitor competitor catalogs, websites, or market reports to understand how similar products are priced. A practical competitor based pricing example would be a tech company launching wireless earbuds and setting the price just under the average of leading brands to stay competitive while still appearing high quality.

What Are The Benefits Of Competitor Based Pricing?
The main benefit is market alignment. It ensures that customers do not see your offer as overpriced compared to alternatives. A competitor based pricing example of this benefit is in the airline industry, where ticket prices are adjusted daily to stay in line with competitors. This prevents potential customers from switching to another airline purely because of cost.

What Are The Risks Of Using Competitor Based Pricing?
The biggest risk is ignoring your own costs and value proposition. If you only copy competitors, you might end up selling at unsustainable margins. For example, if a new restaurant sets menu prices lower than competitors without accounting for higher ingredient costs, profitability may suffer.

When Should A Company Avoid Competitor Based Pricing?
A company should avoid this method if its product is highly differentiated or innovative. For example, a software startup introducing a unique AI tool should not base prices only on competitors offering more basic solutions. Instead, it should highlight its unique features and justify premium pricing.

Final Thoughts

Using competitor-based pricing is a practical, market-aligned way to set your prices—especially in competitive, mature markets. But it should never be the sole strategy.

To succeed long term, combine this approach with internal data, value-based positioning, and regular analytics reviews. As your product evolves and your market changes, your pricing strategy should adapt too.

Start with a competitor based pricing example that reflects your business reality, then refine it with customer feedback and performance data. This layered approach ensures your pricing not only stays competitive but also supports sustainable growth.