Competitor indexing
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Competitor indexing is a price setting technique used by marketers. Generally, it involves using the price of competitors' products in determining the price of your own products.
Variations of this strategy include:
- matching competitors price
- setting price at an amount above competitors' price (say $5 more)
- setting price at an amount below competitors' price (say $4 less)
- setting price at a percentage above competitors' price (say 3% more)
- setting price at a percentage below competitors' price (say 10% less)
- setting price within a range of the competitors' price (say no more than 5% more and no less than 8% less than competitors price)
This strategy is typically used by fringe firms, in an industry with one or two dominant companies (in fact, it is sometimes referred to as the "follow the leader strategy").
Its main advantage is ease of use. Extensive marketing research and statistical analysis are not required. Price research is as simple as going shopping. The main disadvantage is that it is purely reactive. You cannot use price as a variable when constructing a marketing mix : it becomes a constant over which the firm has no control.
See also : Pricing, competitor analysis, marketing, marketing mix