Gaining Market Share through Strategic Pricing Techniques

Pricing plays a crucial role in the competitive strategy of any business looking to grow its market share. The prices a company sets for its products and services directly impact demand and sales volume, which determine market share. While pricing too low leaves money on the table, pricing too high can restrict the customer base and hand share over to cheaper competitors. Therefore, smart pricing approaches are needed to strike the right balance between value and affordability. This article will discuss some of the major pricing techniques companies can use to boost their market share.

Penetration Pricing to Enter New Markets

One effective way for a new entrant to gain market share quickly is to use penetration pricing. This involves setting low introductory prices to penetrate a market dominated by established incumbents. Penetration pricing allows the new entrant to undercut existing players and attract customers away with bargain prices. It works best when entering a market with price-sensitive customers.

The main advantages of penetration pricing for gaining share include:

• Lowering entry barriers – Low prices make it easier for new brands to enter and build scale. High incumbent prices present an opportunity.
• Stimulating trial – Low prices incentivize customers to try the new offering. This helps generate awareness and builds market share through trials.
• Shaping price expectations – Initial low prices can set expectations that become the norm, making subsequent price hikes harder.

Examples of penetration pricing include new rideshare apps offering promotional rates, and new supermarket chains using loss leader prices on key items. The market penetration and customer acquisition enabled by this pricing offset initial losses.

Price Bundling to Boost Value

Companies can use price bundling to offer packages and deals that increase perceived value for customers. Bundling complementary products and selling them as a discounted bundle can help gain market share. This appeals to value-conscious customers who appreciate the bulk discounts.

Some advantages of using price bundling for market share growth:

• Cross-selling – Bundling introduces customers to new associated products they may buy separately later.
• Higher margins – Bundle discounts can actually increase profit margins compared to individually sold items.
• Countering competition – Bundled deals can help counter competitor’s pricing on individual products.

Examples include fast food value meals, airline flight + hotel packages, and telecom plans bundling broadband, TV and phone. The bundles enhance affordability while increasing revenue per customer.

Price Matching to Neutralize Competitors

Price matching involves matching the pricing of competitors to neutralize any advantage they may have. This can be an effective tactic for maintaining market share in the face of lower competitor prices. Price matching signals to customers that you are willing to be competitive on price.

Benefits of price matching include:

• Retaining customers – Customers are less likely to churn to competitors on pricing if you match their prices.
• Building trust – Shows customers you offer fair pricing and avoids leaving money on the table.
• Competitive parity – Lets you maintain share without having to undercut on pricing in a race to the bottom.

Examples include retailers like Best Buy offering to match any lower prices customers find for an identical item. Fuel retailers often match nearby petrol station prices. It’s a defensive pricing move to hold share.

Segmented Pricing to Target Price-Sensitive Customers

Another pricing technique to gain share is segmented pricing, where different prices are offered to different customer segments. This involves understanding budget constraints for price-sensitive segments and offering tailored value pricing. Lower prices can then attract targeted segments away from competitors.

Segmented pricing enables:

• Price discrimination – Charging different segments the maximum they are willing to pay.
• Market share growth – Appealing to price-sensitive segments with discounts grows volume.
• Optimized revenues – Balancing value and affordability better optimizes revenue per segment.

Examples include student and senior discounts, localized pricing in different geographies, and offering basic low-price product models targeting budget buyers. Catering to budget constraints helps gain share.

Psychological Pricing for Perceived Affordability

Psychological pricing techniques take advantage of customer purchasing psychology to make items seem more affordable. For example, using odd numbers like $9.99 rather than $10.00, which appears significantly lower as a sub-$10 price point.

This pricing approach works by:

• Leveraging anchoring bias – Odd prices anchor perceptions below rounded numbers.
• Indicating value – Customers associate odd prices with markdowns and discounts.
• Driving impulse buys – More affordable pricing triggers spontaneous purchases.

Other psychological pricing tactics include undercutting competitors by a small margin (like $9.97 vs $9.99), and using charm prices ending in 7, 5 or 9. The improved price perception can help gain market share.

Regularly Monitoring Competitor Prices

Gaining and keeping market share also requires regularly monitoring competitor pricing across channels. This includes tracking discounts, coupons, loyalty programs and other temporary price promotions.

Keeping updated on competitor pricing allows you to:

• Benchmark your prices – Assess if you have a price advantage or need to reposition.
• Identify opportunities – Spot areas where competitors are overpricing to undercut.
• Respond quickly – Match or beat competitor deals to stay competitive.

Ongoing competitor price monitoring should inform your own pricing adjustments and tactics. This ensures you remain price competitive in defending and growing market share.

Conclusion

Pricing is a powerful lever for gaining market share, if used strategically. Penetration pricing, bundling, price matching, segmented pricing and psychological tactics can help attract customers away from higher-priced competitors. Monitoring the competitive landscape is also key. For pricing to be effective, it must balance delivering value for target customers with maintaining adequate margins. Companies need to regularly assess their pricing approaches as the competitive environment evolves. With the right pricing techniques aligned to strategic objectives, gaining market share is an achievable goal.

References

• Johnson, M. W., & Suskewicz, J. (2009). How to Jump-Start the Clean Economy.
• Dutta, S., Bergen, M., Levy, D., Ritson, M., & Zbaracki, M. (2002). Pricing as a Strategic Capability. https://sloanreview.mit.edu/article/pricing-as-a-strategic-capability/
• Rao, V. R. (2014). Applied Conjoint Analysis. Springer.
• Gijsbrechts, E. (1993). Prices and pricing research in consumer marketing: Some recent developments. International Journal of Research in Marketing, 10(2), 115-151.