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Business Studies for Secondary Schools
Competition-based pricing method: This Amina decides to price her rice at TShs
is a method in which a company sets a 6,800, matching Store C, because she
product’s price in relation to the prices offers excellent customer service and
of competing products. This method convenient packaging.
is also called the on-going rate pricing
method. It focuses on the prices charged Step 3: Ensure profitability
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by other businesses and organisations in Amina calculates her costs per 2kg
the same market or industry. It does not bag:
always imply charging an identical price Wholesale price per bag = TShs 5,000
but rather using the others’ prices for Overhead costs (transportation and
comparison. storage) = TShs 1,200
Example 3: Amina owns a small Total cost per bag = 5,000 + 1,200 =
grocery store and wants to set the TShs 6,200
price for a 2kg bag of rice using the Profit per bag = Selling price − Cost
competition-based pricing method. Profit = 6,800 − 6,200 = TShs 600
Instead of setting prices based only on Final price:
her costs or customer willingness to
pay, she looks at what competitors are Amina sets her price at TShs 6,800,
charging to remain competitive. ensuring she stays competitive while
making a profit.
Step 1: Research competitor prices
Amina visits nearby grocery stores and Strategies for setting competitive prices
finds the following prices for a 2kg bag The following are among the strategies
of rice: used in setting competitive prices:
Store A sells it for TShs 6,500 Skimming pricing: The strategy refers
Store B sells it for TShs 7,000 to charging a high price initially when
Store C sells it for TShs 6,800 a product is introduced in the market
Step 2: Decide on a pricing strategy and reducing the price over time. It is
Amina can choose from three commonly used when introducing new
and innovative products. For example,
competition-based pricing strategies: when selling products like electronics
Pricing below competitors (example, and fashion products, this strategy may
TShs 6,400) to attract more customers. be used.
Pricing the same as competitors
(example, TShs 6,800) to stay Penetration pricing: The strategy refers
competitive. to charging a low price when entering the
Pricing above competitors (example, market to capture the market share. It is
TShs 7,200) if she offers better quality used when competitors are in the market
or extra services. with similar or better products to stimulate
word of mouth for your products. This
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