competition based pricing

Competition Based Pricing: How to Make the Most of It

Key points

  1. Competition-based pricing offers a straightforward approach, using competitor prices as a baseline, allowing for easy implementation without extensive research.
  2. While initially appealing, competition-based pricing may not be sustainable in the long run, as more businesses adopt similar strategies.
  3. Explore alternative pricing strategies, such as tiered pricing, value-based pricing, and project-based pricing, which can offer more sustainable and differentiated approaches in highly competitive markets

Pricing for agencies—a difficult topic considering how many pricing strategies exist. One of them is the competitive pricing strategy. How does it fare compared to other ones, and when does it make sense to use it?

The competitor-based pricing strategy is one of the trickiest ones to pull off. You’re going head-to-head against established companies, trying to win over a market segment with the same price point as theirs. How can you outsmart your competitors by offering a product or service on a similar price level?

In this post, I’ll explain the advantages and disadvantages of this pricing method, when it makes sense to use it, and how to position yourself in the market.

What is competition-based pricing?

As the name suggests, this pricing model requires you to align your price based on your competitors. Compared to the value-based pricing strategy or cost based pricing strategy, you won’t need to do sophisticated research and analyze how much potential clients are willing to pay. Everything is based on competitor prices, which makes it easy for you to kick-start your new business.

While this pricing may seem like an easy win, it’s not that simple. In eCommerce it makes sense because you can use a variety of tools to track your competitor’s prices, and adjust yours accordingly. For agencies, though, it’s a bit more complicated, especially if you’re new to the market. You’ll need to find things that set you apart from the competition, as you’re neither using premium prices nor low ones.

Defining a competition-based pricing strategy

To start off your strategy, first you need to research your competitors. Find everyone in the same niche, offering similar services. Note down their prices in a spreadsheet and use the AVERAGE function in Google Sheets to find the average price they offer. This might not be very easy at first, because some agencies do not make their pricing public. You should still try to get as many data points as possible in order to make good pricing decisions.

Next, you’ll have three options to choose from.

Match their price

You probably know this from supermarkets and electronic chains that offer to match the price if you find a product cheaper somewhere else. This promise isn’t sellable as an agency, but you can still price your services the same as your competitors. Keep in mind that matching a price alone is not a guarantee for success. You need to also match their quality and service delivery—and that is not straightforward.

An established agency has processes in place that allow them to run a lean business. They might be using a client portal software such as SPP, have set up automations, and are partnering up with other agencies to resell services. You’ll have to catch up with their way of doing business if you want to have a solid profit margin.

Offer a lower price

If you decide on making your pricing lower than the competition, in theory you’ll be able to attract clients more easily. The cheaper prices are after all what differentiates you from other agencies. You’ll still have the same issue as with the price-matching strategy: without lean processes, you might spend more money on delivering the services than you’re making selling them.

Low prices can also cut into your profit margins, making it hard to hire new talent and scale your agency. If you do decide to offer low prices, try to focus on revenue from recurring services as it helps you keep an eye on your cashflow, and make decisions more easily.

Opt for the premium price

If you prefer to establish a premium brand, and you think you have a chance after conducting a competitive pricing analysis, you can choose higher prices than your competitors. This only works if you have a strong brand or a team consisting of industry experts that you can use to position your brand.

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The biggest challenge will be to stay ahead of everyone else in the market and to innovate. A premium brand cannot just offer the same services as the rest, they should demonstrate that they are the best. This in itself can be very tricky to achieve, as it’s only possible with talented people who can think outside the box.

Further reading

Advantages & disadvantages of using competitors’ prices

Let’s look at the advantages and disadvantages of competition-based pricing.


  • Simple implementation: You’re not required to do a lot of research because you’ll take the prices of your competitors as a baseline. Once you’ve collected the pricing data, you just need to find the average and implement it, then see if it works for your business.

  • Low risk: You don’t have to invest a lot of time (and money) into research, which makes it easy to launch your business compared to the other types of pricing strategies. Plus, your competitors will have adjusted their prices after years of data collection.


  • Not sustainable: Once you enter the market with a low pricing strategy, you’ll compete with more and more businesses trying to do the same. This means you’ll have to continuously optimize your processes in order to improve your profit margins—and there’s a limit you’ll hit eventually.

  • Trouble differentiating: The top competitors in your market have the advantage that they’ve been around for a while; and they have case studies to prove their experience and knowledge. How can you compete with that? A lower price might work in some cases, but it’s not always enough to attract leads.

Alternatives to competitor based pricing

If you don’t want to go all-in on the competitor-based pricing strategy, check out these alternatives, which are a good fit if you’re dealing with a highly competitive market.

  1. Tiered pricing: A popular strategy for agencies selling subscription-based services. You can, for instance, bundle your content writing services into different tiers that offer services and features at different price points. The lowest one only includes content writing, while the higher-priced one includes also SEO optimization with a tool such as SurferSEO.

  2. Value-based pricing: One of the trickier strategies to put into practice because it requires a lot of research and testing. For this to work, you need to know your customer, what they are willing to pay for a service, and what kind of services they find valuable. All this work usually pays off because you’ll enjoy higher profit margins.

  3. Project-based pricing: You need to charge a fixed fee for a service or project, which requires you to be excellent an estimating the workload required. Nailing the scope of the project is not easy, which is why only experienced agencies are able to use this pricing method.

Competition based pricing FAQ

What does competition-based pricing mean in marketing?

From a marketing perspective, competition-based pricing allows you to position your brand more easily compared to competitors, namely based on your price (lower, higher, the same).

What companies use competition based pricing?

Many companies use competition based pricing, including those in the retail, technology, and automotive industries. Also, agencies in niches such as content writing and graphic design use this strategy.

Why use competition based pricing?

Competition-based pricing is a useful strategy for businesses, as it allows them to stay competitive in the market by setting prices based on those of their competitors. It also requires less research than other strategies.

When is competition based pricing used?

This approach can be adopted when there are many competing firms in the market, and prices are the primary factor that customers consider when making a purchase.


Researching competitors’ pricing can help you launch a business quickly and easily. But this pricing strategy has a major disadvantage, namely that it isn’t sustainable long-term. With that said, if you believe that you can put processes in place that allow you to keep a good profit margin, it’s worth giving it a shot.

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