What is Competition-Oriented Pricing?

Competition-Oriented Pricing
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Competition-oriented pricing, also known as market-oriented pricing, is a pricing method that involves basing prices off of a competitor's prices instead of considering consumer demand and one's own costs. This method also takes the target market into account and needs the analysis and research based on the target market.

How it Works 
Based on the competitor's prices, a business can decide whether they want to sell their own product at a price lower than their competitor's or higher, depending on what they are trying to achieve by basing their prices on someone else's.

If they are trying to appear higher end or of better quality than their competitors, they may want to price their own product higher. But if that will not necessarily help them, and they want their own product to be more affordable than that of their competitor, they may choose to price theirs lower. 
Advantaged and Disadvantages of Competition-Oriented Pricing 
This pricing method has several advantages and disadvantages. On the one hand, it can keep price competition down, which could otherwise damage a business. Also, setting a price based on a competitor's can allow a business to avoid losing market share to the competitor.  On the other hand, it may mean that other tactics are needed to reach customers because the price may not be enough of an incentive. The price may also barely cover production costs, or not even cover production costs, making profits too low.  
Another mistake that can occur based on competition-oriented pricing is the fact that the price-setters can become too passive and lose sight of their price-setting responsibilities.

Getting too attached to prices based on competitors' can lull them into a false sense of security and make them unable to realize when the prices need changing. 
Example of Competition-Oriented Pricing 
For example, if a popular store chain sells something at $3.99, a newer store nearby may choose to price the same or a similar product at the same price in order to capture market share, but this would mean that the price itself is not an incentive for consumers, and the store would need to find other ways to reach customers.

However, if the new store nearby chooses to price their product lower than the big store does, the new store may draw more customers based on their prices alone, especially if most of their products are cheaper than at the big store and customers know the store to have cheaper prices. 
Price is an important part of a business' marketing mix, and changing the price can dramatically affect the marketing tactics needed. And when identifying a marketing mix, the price of competitors will factor into how a business chooses to price its products, whether they are utilizing competition-oriented pricing or not.