As we have seen, an offerer has five competitive positions relative to its competitors: leader, challenger, follower, nicher or niche occupant, and outsider.
Regarding the pricing policy of these suppliers, the leader usually charges higher prices than its competitors. Coca-Cola is an example of this stance. However, this is not always the case, as some market leaders, due to their cost leadership, have lower prices. Wal-Mart, despite being sales leader, very often has better prices than the competition.
The challenger, in turn (whether Pepsico or any other), can charge identical or lower prices than the leader. When it uses similar prices, it relies on other comparative advantages, such as its packaging, distribution network, logistics, or sales team. When it offers lower prices, it tries to persuade buyers to opt for the same benefits as the competition but at a lower cost.
The follower, in its place, as it is considered second-line, must charge lower prices than the leader, the challengers, and the competitor that serves as a reference. Those prices vary depending on the market, the weight of the target competitor, and the image of its product and brand in the mind of the buyer/consumer. Even so, under normal market conditions, a few percentage points reduction in the sales price may be enough to attract many buyers to its offer.
The nicher, in contrast, due to its specialization, has a lot of price freedom. He can set prices that give it a comfortable margin of profit without worrying about competitors’ threats in the short term. Yet if they are relatively high, in the long run, the danger exists because where there are substantial gains, always emerge competitors willing to grab them.
At least, the outsider must choose between pricing higher, lower, or equal to its competitors. Its decision will depend on its privileges, the competitive advantages of its offer, its ability to persuade its clients, and the market conditions.
In an outsider disruptive solution, depending on the benefits offered, even a price higher than twenty percent can attract buyers for a new user experience that, if favorable, will generate a repeat order. However, there are situations where only a substantially lower selling price will make the buyer bet on the option that differs from the established pattern.
C. L. Eckhard, author of Pricing in Agribusiness: setting and managing prices for better sales margins.