When pricing your products, you may wonder how to make the most out of it. In fact, the price is more than just a number. There’s a psychology behind pricing and how it affects purchasing behaviour

To price your products or services properly, you’ll need a strategy. 

Competitive pricing could be the right choice for your business. This strategy hinges the cost of products on the price of similar products and competitors. 

While competitive pricing can benefit many businesses, it’s not the right fit for everyone. So it’s important to know what it is and if you should use it. Luckily, we can help with that.

This guide discusses the competitive pricing strategy, including:

  • What is a competitive pricing strategy?
  • When does this strategy work well? 
  • How can you create one?

What is a competitive pricing strategy?

A competitive pricing strategy is when you determine your price based on the cost of similar products. As you compare your prices to others on the market, you can create a competitive edge

If a product has a steady market price, or the common price an item sells for, it’s easier to set competitive pricing. 

The types of competitive pricing

You can set your competitive pricing either: 

  • Above the competitor – Listing the price higher than similar products (like premium pricing) can suggest that your products have higher quality or offer more. 
  • Below the competitor – Listing them below offers affordability and savings compared to similar products. 
  • The same level as the competitor  – Setting your prices at the same level as competitors makes them more of an even comparison, causing buyers to look into the details of each product to see which is the right fit. 
  • Price matching – Offering to alter your pricing to match the lowest deal on a similar product. 

Think about it like this

People often shop around for the best option. They might look for the cheapest or seek a higher quality, which would cost more. 

Most people seek products that offer them the most for their money. Competitive pricing can show them you’re the right choice. 


Say you want to sell hand-poured candles. In this case, similar products from small businesses typically cost between £15-20. So, you could choose to price your candles at either: 

  • £12 – a high-quality candle for a deal!
  • £20 – a price most people would expect to pay. 
  • £25 – a slightly higher price to suggest your candles take more effort and offer better quality. 

Wireless earphones are another great example of competitive pricing

  • Apple’s most current AirPods sell for £169
  • You can also find cheaper options from JVC for £49, or even cheaper options from Amazon for £19.  
  • On the other side of the spectrum, Beats wireless earphones are listed at £199 to suggest they offer more quality than Apple. 

When does competitive pricing work well?

If you strategise well, competitive pricing can help you stand out from similar products. As a result, buyers may choose you over the rest. But, it’s not the right approach for all businesses.  

The competitive pricing method is mainly beneficial to product sales since products can be more comparable than services. Services can differ greatly in quality or specifics. 

But, when you sell products much like other businesses, your price can be the deciding factor. If you want to succeed with competitive pricing, there should be a lot of similar products out there to compare yours to

How can you create a competitive pricing strategy for your business?

If you decide the competitive pricing strategy is the right path for your business, the next step is to create a plan. Here are the key steps to follow:

Choosing the right competitive pricing 

First, you’ll need to decide which direction you want to go with your competitive pricing. Will you raise your prices, lower them, or meet competitors? 

When considering this, ask yourself what you want your price to say. As we touched on before, if you raise your prices, this can suggest quality and exclusivity. Meanwhile, lowering them can imply value and affordability. 

When choosing your route, consider your target audience and what they might be looking for. If your brand focuses on cost-cutting products, you might choose a lower competitive pricing strategy. 

Finding the research to back your strategy

Once you decide your approach, research similar products to get an idea of the average price points. With a clear idea of how much competitors sell their products for, you can set realistic and effective pricing

For example, say you want to price your phone case products competitively. You might notice a similar phone case sells for about £15. 

This number can inform your final number. You won’t have data to back up your prices without the research.

Determining how to price your products

Next, you can settle the right competitive prices for your products based on your strategy, audience, and competitors. 

As you do this, also consider the profit margin of your sales. Though competitive pricing can help you earn more sales, it’s still important to stay profitable

For example, say you sell books. You notice that most paperback books sell for about £8. But, as a small business owner, your overhead costs may be more than larger companies. 

In this case, you could target a higher price point and sell most of your books for £10. This price can imply the added value of an independent bookstore.   

Marketing your prices 

Your marketing should work with the pricing strategy you adopt. If you choose to offer lower prices than competitors, consider this in your marketing strategy

For example, you might create advertisements that focus on the cost-saving aspect of your products. 

Your competitive pricing strategy should match your values, which should come through in your marketing. 

If you want to learn more about this, check out our article on how to create a marketing strategy for a small business

Track your pricing strategy success and more with Countingup 

As you incorporate a competitive pricing strategy into your small business and draw in more sales, it’s important to organise your finances well. Modern accounting software like Countingup can help you keep up with it all. 

Countingup is the business current account and accounting software in one app. It automates time-consuming bookkeeping tasks for thousands of self-employed people across the UK. 

Save yourself hours of accounting admin so you can focus on growing your business. 

Start your three-month free trial today