Competitive pricing examples, mistakes, and strategies to grow 

In markets where consumers have many choices, pricing strategically can seriously influence purchasing decisions. Effective competitive pricing involves tactical decisions about market positioning, perceived value, and business goals. 

Although it has its challenges, when executed thoughtfully, competitive pricing can help attract customers, maintain market share, and build long-term brand value.

This article explores how businesses use competitive pricing to their advantage and how you can learn to do the same.

Read on to learn:

• How competitive pricing works and how it differs from other pricing models
• Why a competitive pricing strategy is essential for startups
• Common pricing mistakes to avoid
• Competitive pricing examples across various industries
• How to use competitive pricing as a powerful tool for scaling your business

Let’s get started by explaining what competitive pricing is. 

What is competitive pricing?

Competitive pricing is a strategy where businesses set their prices informed by market conditions and competitor actions. Rather than merely copying competitors, successful competitive pricing involves strategic analysis of market positioning, customer expectations, and internal cost structures. 

In short, it helps businesses remain competitive while strategically responding to market trends.

Competitive prices are crucial. Consumers have more choices than ever, and a slight price difference can significantly impact purchasing decisions. A well-executed competitive pricing strategy helps businesses attract customers, maintain market share, and build a reputation for value.  

Competitive pricing vs. cost-plus and value-based pricing

It is important to understand how competitive pricing differs from other pricing models. Cost-plus pricing, for instance, involves calculating the total cost of production and adding a markup to determine the selling price. It focuses on internal costs instead of external market factors. 

Value-based pricing, on the other hand, sets prices based on the perceived value of the product or service to the customer. It's about how much a customer is willing to pay for the benefits they receive.  

Competitive pricing strategically uses competitor pricing as a key reference point. Its primary advantage is responsiveness to market conditions, helping businesses remain competitive. 

However, the approach has limitations — businesses risk losing profitability if they fail to account for their internal costs or underestimate their unique value proposition. 

Unlike cost-plus pricing (internally focused) and value-based pricing (customer-focused), competitive pricing emphasizes market positioning in relation to competitors, balancing external insights with internal business goals.

Note: Learn more about competitive pricing in our blog post.

Why startups need a competitive pricing strategy

For startups, establishing a sound pricing strategy is about survival and growth. The right price can be a powerful tool for customer acquisition and market penetration. Let’s zoom in a little bit closer on why they need a competitive pricing strategy:

Limited brand recognition and attracting early customers

Startups typically enter markets with limited brand recognition, making pricing a critical lever for attracting early adopters. Choosing a competitive price — whether below, matching, or strategically above competitors — depends on the startup’s market-entry strategy. 

Lower pricing may reduce perceived risk and entice initial users. Matching your competitors signals alignment with market expectations. Pricing slightly higher could signal superior quality or unique benefits. Each approach has distinct strategic advantages and potential risks that startups must carefully evaluate.

Now, how does competitive pricing affect consumers? It gives them more options and helps create better deals.  

Balancing growth vs. profitability

Startups face the constant challenge of balancing rapid growth with sustainable profitability. While aggressive pricing can drive initial customer acquisition, it can also strain financial resources if not managed carefully. 

A well-thought-out competitive pricing strategy allows startups to find that sweet spot, attracting customers without sacrificing long-term financial health. Finding that balance is crucial for survival.  

Investor confidence and funding

Investors closely scrutinize a startup's pricing strategy. A realistic and well-justified pricing model demonstrates a deep understanding of the market and the competitive landscape. It also shows that the startup has a plan for sustainable revenue generation.

Investors want to see a clear path to profitability. In industries where price competition examples are common, showing that you can compete, and still make good margins, is important. A solid pricing strategy can increase investor confidence and improve the chances of securing funding.

How does competitive pricing work?

Competitive pricing hinges on a deep understanding of the market. Businesses analyze competitor pricing, customer preferences, and market trends to determine the optimal price points. This research informs decisions on whether to price below, at, or above competitors. 

Knowing where you stand is half the battle. Effective competitive pricing requires continuous monitoring and adaptation to market changes. Businesses, especially in the e-commerce space, can use tools to monitor competitor pricing in real time. 

Factors that influence pricing

Several factors influence competitive pricing strategies. Understanding these factors allows businesses to make informed pricing decisions. Let’s take a closer look at those factors:

• Demand: Changes in demand directly affect pricing. High demand may allow for higher prices, while low demand may require lower prices.
• Competitor prices: Competitor pricing significantly influences this strategy, but effective competitive pricing also balances competitor analysis with customer preferences, differentiation opportunities, and overall business objectives.
• Economic trends: Inflation, recessions, and other economic factors can influence pricing decisions.
• Production costs: The cost of materials, labor, and other production expenses impacts the minimum price a business can charge.
• Perceived value: The perceived value of a product or service in the eyes of the customer influences their willingness to pay.
• Seasonality: Many products have seasonal demand, which can lead to price fluctuations.

Dynamic vs. static pricing

Competitive pricing strategies can be either dynamic or static. Dynamic pricing involves adjusting prices in real-time based on market conditions, competitor actions, and other factors. It's about being agile and responsive. 

Static pricing, on the other hand, involves setting fixed prices that remain constant over a longer period. To recap real quick:

• Dynamic pricing allows businesses to maximize revenue by capitalizing on short-term market fluctuations.
• Static pricing provides price stability and predictability, which can build customer trust.

Dynamic pricing is common in industries with high price volatility, such as airlines and e-commerce. Static pricing is often used for products with stable demand and less price sensitivity.

Remember: If you’re planning on making price changes or increases, you’ll want to learn how to announce them. 

Common competitive pricing mistakes startups make

Startups often stumble when implementing competitive pricing, leading to missed opportunities and financial strain. Avoiding these pitfalls is crucial for long-term success:

1. Underpricing to win customers but losing profitability

Many startups mistakenly believe that offering the lowest price is the most effective way to rapidly acquire market share. However, while a low price can attract attention, it often leads to unsustainable profit margins and long-term financial instability. 

By setting prices too low, startups risk undervaluing their products or services, making it difficult to cover operational costs, invest in growth, or weather unexpected financial downturns. It's a race to the bottom that no one wins, where the only prize is eventual burnout.

Solution: Rather than solely focusing on price, startups should emphasize the value they provide. Conduct thorough cost analyses to understand the true expenses associated with producing and delivering their offerings. 

Set prices that not only cover these costs but also allow for a healthy profit margin. Consider implementing tiered pricing models to cater to different customer segments and offer various feature sets at different price points.

2. Not differentiating on value, competing solely on price

Competing exclusively on price ignores the unique value proposition that a startup brings to the market. Customers are often willing to pay a premium for products or services that offer superior quality, unique features, or exceptional customer service. 

By focusing solely on price, startups risk commoditizing their offerings and becoming indistinguishable from competitors. Don't be afraid to highlight what makes you different, because different sells.

Solution: Startups should clearly articulate and communicate their unique selling points to their target audience. Invest in brand-building and marketing efforts that highlight the distinct advantages of their products or services. 

Focus on building strong customer relationships and delivering exceptional value that justifies a premium price.

3. Ignoring customer willingness to pay

Setting prices without a sense of what customers are willing to pay can result in lost sales or missed revenue opportunities. Startups must conduct thorough market research to determine the optimal price range for their target audience.

Solution: Conduct comprehensive market research using surveys, focus groups, and data analysis to understand customer preferences and price sensitivity. 

Analyze competitor pricing and customer feedback to identify price points that resonate with the target market. Regularly review and adjust pricing strategies based on evolving customer needs and market conditions.

4. Overcomplicating pricing tiers

Offering an excessive number of pricing tiers can confuse customers and make it difficult for them to make informed purchasing decisions. A complex pricing structure can lead to decision paralysis, resulting in lost sales and customer frustration. 

Solution: Startups should aim for simplicity and clarity in their pricing structures. Limit the number of pricing tiers and clearly define the features and benefits associated with each tier. 

Make sure that the pricing structure is easy to understand and compare, allowing customers to quickly identify the option that best meets their needs and budget.

5. Failing to monitor competitor pricing changes

The market is dynamic, and competitors constantly adjust their pricing strategies in response to changing market conditions. Failing to monitor these changes can leave startups vulnerable to being undercut or overpriced, resulting in lost sales and market share. 

Solution: Implement robust tools and processes to monitor competitor pricing in real-time. Regularly review and adjust pricing strategies based on market changes and competitor actions. 

Consider using dynamic pricing tools for automated adjustments, allowing for agile responses to market fluctuations and ensuring that pricing remains competitive.

Competitive pricing strategies for startups

Startups have various competitive pricing strategies at their disposal. Choosing the right one is crucial for success. Each of the following strategies caters to different market conditions and business goals:

• Lower pricing: Set prices below competitors to attract price-sensitive customers. Effective for gaining initial market share, but requires careful cost management to maintain profitability. Being the budget-friendly option can be a powerful draw.
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• Higher pricing: Position products or services as premium offerings with higher prices. Justified by superior quality, exclusive features, or a strong brand reputation. Luxury sells, but you must deliver.
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• Freemium offers: Provide a basic version of the product or service for free, and charge for advanced features or premium content. Effective for customer acquisition and building a user base.
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• Price skimming: Introduce new products at high prices, then gradually lower them as competition enters the market. Capture early adopters willing to pay a premium.
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• Price matching: Match competitor prices to remain competitive without constantly adjusting pricing. It's about staying in the same ballpark.
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• Dynamic pricing: Adjust prices in real-time based on demand, competitor prices, and other factors. Agility is your friend in a dynamic market.
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• Loss leader strategy: Price one product below cost to attract customers who will then purchase other, more profitable items. Get them in the door, and then wow them.
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• Tiered pricing: Offer different products or service packages at varying price points, catering to different customer needs and budgets. 
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• Value-based pricing (in a competitive context): While normally not considered competitive pricing, startups can use competitor information to inform their perceived value. 
  
  If competitors are charging high prices, and the startup can offer similar value, they can price their product in a similar range. If the competition is low, the startup can charge more for the value they provide. 
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• Bundling: Combine multiple products or services into a package and offer it at a discounted price. This can increase sales volume and customer loyalty. More for less is a powerful incentive.

Competitive pricing examples are abundant, with each strategy having its own set of advantages and disadvantages. In the next section, we’ll dive into some examples to paint a fuller picture. 

Competitive pricing examples for startups across industries

Competitive pricing strategies have been instrumental in the growth of many successful startups. Let's look at some examples across different sectors:

SaaS companies: Slack's "land and expand" freemium model

Slack famously used a "land and expand" freemium strategy in its early days. The company allowed individual users within organizations to sign up and use the basic version of Slack for free. Slack aimed to achieve widespread adoption at the team level. 

The expectation was that as usage grew and teams recognized the platform's value, organizations would eventually opt for paid plans to unlock advanced features and administrative controls. 

This approach effectively lowered the initial barrier to entry and fostered organic adoption within organizations. 

The "land and expand" model capitalizes on the network effect within organizations, where free individual usage acts as a viral loop, naturally leading to the adoption of paid organizational plans as teams expand and require more sophisticated features and centralized management.  

E-commerce: Amazon's early below-cost pricing

Amazon, in its early days as an online bookstore, was a prime example of a company that used aggressive competitive pricing. Amazon famously sold books below their cost to gain market share and effectively eliminate numerous independent bookstores. 

This strategy of undercutting, while controversial, was instrumental in establishing Amazon's early dominance in the online retail market. By prioritizing rapid market share acquisition over immediate profitability, Amazon built a huge customer base and a powerful network effect.  

Subscription services: Netflix's disruptive flat-fee model

Netflix's early pricing strategies played a pivotal role in its disruption of the traditional video rental market. The company initially launched in 1997 with a per-rental fee model for DVD rentals. 

However, in 1999, Netflix made a transformative shift to a subscription model, offering customers unlimited DVD rentals for a flat monthly fee. This innovative approach directly challenged the prevailing pay-per-rental system used by brick-and-mortar video stores like Blockbuster, which often included late fees. 

The simplicity and predictability of Netflix's flat monthly fee provided a significant advantage, positioning Netflix as a more customer-centric alternative.  

D2C: Warby Parker's affordable pricing

Warby Parker changed the eyewear industry by adopting a direct-to-consumer (D2C) model that allowed them to offer stylish prescription glasses at prices significantly lower than those found in traditional optical retailers. 

By cutting out intermediaries and selling directly to consumers online and through their own retail locations, Warby Parker made fashionable eyewear more accessible and affordable. Their innovative "home try-on" program and commitment to social responsibility further enhanced their value proposition beyond just competitive pricing.

Using competitive pricing to scale fast

Competitive pricing can be a powerful lever for startups seeking rapid growth. It's about strategically using price to accelerate expansion. When done right, it can quickly capture market share and establish a strong foothold. Here are some tips for scaling:

Pricing as a growth lever

Startups can use competitive pricing to rapidly grow their market share by attracting price-sensitive customers eager for better deals. 

This approach can lower the barrier to entry, encouraging customers to try a new product or service over potentially more expensive options. Essentially, price becomes a key driver of customer acquisition.  

Balancing acquisition costs vs. revenue

While competitive pricing can drive customer acquisition, startups must carefully balance this with profitability. A strategy of undercutting competitors to gain market share can be unsustainable if it leads to selling offerings at a loss. It's a delicate balance: Aggressive pricing to attract customers versus ensuring long-term financial health. 

Experimenting with A/B testing and price adjustments

To optimize pricing for growth, startups should experiment and adapt. This involves testing different price points, offers, and strategies to see what resonates with customers and drives the desired results. 

A modern billing platform enables this by providing the flexibility to adjust pricing, introduce tiered pricing, offer coupons, and manage upgrades and downgrades with ease. Agility in pricing is crucial, and A/B testing helps refine the approach.

FAQs

How do startups set competitive prices without losing money? 

Startups must deeply understand their operational costs before setting competitive prices, ensuring that even their lowest prices cover expenses. They should also focus on the value they provide, not just undercutting competitors, to avoid a race to the bottom.  

What’s the best pricing strategy for a bootstrapped startup? 

There isn't one "best" strategy, but bootstrapped startups should balance competitive pricing with a focus on perceived value to avoid undervaluing their product.  

Should startups change their pricing frequently? 

Startups should adapt their pricing as the market evolves and competitors change their prices to stay competitive.

When should a startup offer discounts or promotions?

Startups might use discounts or promotions as part of a competitive pricing strategy to attract customers or quickly gain market share.

How can a startup determine if its pricing is too low or too high?

Startups can evaluate their pricing effectiveness by monitoring key performance indicators like customer acquisition costs (CAC), churn rate, conversion rates, and gross margins. 

Do you have strong sales but super-thin margins? Then your prices may be too low. On the flip side, do you have high website traffic but low conversions? Then above-average pricing may be the problem. Gathering customer feedback and running A/B pricing experiments can show how your audience perceives your value proposition at your current prices.

How Orb helps you make the most from your competitive pricing 

We've explored competitive pricing examples and ways to drive growth for businesses. But to truly make the most from these strategies, you need a billing platform that offers agility.

That's where Orb comes in.

Orb is a done-for-you billing platform. It’s designed to help SaaS and GenAI companies. Unlike rigid, traditional systems that limit your options, Orb unlocks your usage data, giving you the power to experiment with pricing, fine-tune your monetization strategy, and adapt to change without constraints.

Here's how Orb supports competitive pricing agility:

• Experiment without limits: Orb's RevGraph and SQL Editor let business teams launch new pricing, test changes using historical data, and support all modern pricing models (usage, subscription, hybrid) — all without heavy engineering involvement.
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• Fine-tune monetization: Move beyond static billing. Orb gives you the tools to adjust pricing, add tiers, roll out promotions, and automate price changes so you can improve your revenue in response to the market.
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• Data-driven decisions: Orb provides the insights you need to understand customer behavior and usage patterns so you can make informed pricing decisions and quickly adapt your strategy.

Make sure to learn more about how we’ve solved pricing and billing for our customers by reading our case studies. 

Ready to move to dynamic, data-driven monetization? 

Discover how Orb can help you scale faster and check our flexible pricing options to find a plan that works for you.