Competitor oriented pricing

• This is when a firm sets the prices of its products in relation to those of competitors
• Instead of charging prices based on costs or customer perceptions prices are based on what the competitors are charging
• This typically involves charging prices that are in line with those of competitors
• The greater the competition in the market the greater the pressure to keep the prices in line
• In a theoretical perfect competition market all firms charge the same price
• In reality businesses charge prices that are not very different
• In a market that is dominated by a few large firms for example Zimbabwe’s Mobile Network Market
• Business rivals for example Econet, Telecel and Netone carefully study the prices being charged by rivals
• Businesses set their prices in accordance with those of their rivals
• It would be dangerous to charge a very low price as this could result in destructive price wars
• Competitive price cutting is designed to weaken and destroy rivals
• Destroyer pricing-is a policy of aggressive price cutting with the primary aim of weakening and eliminating rivals
• Penetration pricing-can also be viewed as a form of competitor based pricing in addition to it being a customer oriented pricing strategy
• Destroyer pricing can be used as a barrier entry by monopolies and oligopolies

To access more topics go to the O Level Business Notes