Five reasons why a price comparison tool is not enough

Price comparison tools—web tools that automate the capture of market prices on your competitors’ websites—are becoming more and more common. They are very useful for speeding up the collection of information needed to feed a pricing management process. The problem is believing that simply having competitors’ prices means you have a pricing process. Nothing could be further from the truth. Below are five reasons why using a price comparison tool is not enough to make sound pricing decisions.

They do not consider perceived value
The fact that a competitor has a lower price than yours does not necessarily represent a threat to your product. If that competitor offers fewer benefits—whether due to lower performance, lower service levels, or a brand with less value—the lower price may even be perceived as expensive in the eyes of customers.

Likewise, a competitor with a higher price than yours should not necessarily be underestimated. When a competitor has a better value/price ratio than you do, it can represent an even more serious threat than a lower-priced competitor.

Price comparison tools do not calculate the value/price ratio of market solutions. They simply generate alerts when a competitor’s price falls below yours.

The best pricing tools don’t just compare prices; they contain advanced algorithms that simulate your customers’ buying behavior, considering the value they perceive in the alternatives available in the market.

They use rule-of-thumb logic
Some price comparison tools offer “price optimization” modules based on rules. In these, you can configure multiple rules based on your competitors’ relative prices—“I want to match the cheapest,” “I want to be 10% above the most expensive,” “I want to be $5 below competitor X,” etc.

These rules might work if your competitors’ prices were always consistent. But in the real world, they are not. Imagine you have two competitors, A and B. According to your market knowledge, A’s prices are 20% above B’s. You want to have mid-range prices—lower than A’s but higher than B’s. So you configure the rules of your tool to set your prices 10% below A, aiming to achieve the desired positioning. But in reality, there are many products where A and B have similar prices, and others where B’s prices are even higher than A’s. In these cases, the rules you configured would cause you to end up as the cheapest one in the market.

A robust pricing tool recognizes that price relationships between competitors are not homogeneous across all products—especially in businesses that manage hundreds or thousands of SKUs. Pricing tools like PGP by PREXUS calculate the value/price ratio of the main alternatives in the market and determine the optimal price based on a “basket” of competitors rather than on individual competitors.

They do not account for price sensitivity
Price comparison tools do not know which products are more likely to trigger price comparisons among your customers. They leave it to the user to configure the rules for each product based on empirical judgment.

Robust pricing tools quantify the level of price sensitivity your customers demonstrate for each solution offered, based on variables such as purchase frequency and average purchase amount. This makes it possible to determine exactly which products need more competitive prices and which can sustain higher margins without risking lost sales.

They do not guarantee higher profitability
Some price comparison tools allow you to enter your cost and current sales data to project new results—although without taking into account the impact of price elasticity of demand.

However, these “price optimization” modules do not question whether the price suggested by the rule is actually the most profitable for your business. It may be that, even if a product is overpriced—above the ideal market price—the product’s low margin makes lowering the price unprofitable. And a typical comparison tool does not recognize this situation.

Analytical tools like PGP by PREXUS evaluate, case by case, the optimal price that meets perceived-value and price-sensitivity criteria while ensuring profitability in the short and medium term.

They only work with prices available online
Price comparison tools work very well when your competitors publish their prices online completely, promptly, and reliably. But this is not always the case. Many times your main competitors are informal businesses that do not publish their prices online.

Pricing tools allow you to manually enter the prices of competitors that do not publish their prices. They also let you define price relationships between products that lack reference prices in the market and other products that do have them, thus ensuring consistency across your pricing and enabling price recommendations for 100% of your solutions.

In summary…
Having a tool to automate the capture of your competitors’ prices is not the same as having a pricing management process. In addition to market prices, a true pricing process must quantify the value your customers perceive, the price sensitivity they demonstrate for each solution, and ensure the profitability of the new prices. Having competitors’ prices without an analytical tool to process them is like having arrows without a bow to shoot them.