Competitor Indexing : Technique of Modeling a Consumers Decision Process

A Simple Yet Detailed Guide on Competitor Indexing

If you are a marketing student, you must be familiar with the topic “competitor indexing technique of modeling a consumers decision process.” You cannot really write a good paper on it without having your concepts cleared. Here is a guide that has been created to give you a clear idea about the topic. Read it to gather information, prepare for your exams or write a stellar assignment.

Definition of Competitor Indexing

Competitor indexing can be defined as a technique used by marketers to set prices. The prices are set on the basis of a numerical index, which has been obtained from detailed market research, especially, the competitors’ product prices. Several variations of this strategy are as following:

Competitors’ price matching
Setting a price which is more than the competitors’ price
Setting a price which is less than the competitors’ price
Setting a price which is a percentage less than the competitors’ price
Setting a price which is a percentage more than the competitors’ price

The methods used to find this index depend on various factors like brand strength, the sales people’s persuasiveness, and product functional comparison. Marketers should also take into consideration how the competitors will react to the newly set prices.

The competitor indexing technique has both advantages and disadvantages. This technique is beneficial because it is very easy to use. Other than this, there is no need for detailed statistical analysis and marketing research. On the other hand, this technique is not spontaneous. The price also becomes a constant that cannot be used to create a marketing mix.

Examples of Competitor Indexing

An example of the competitor indexing would be that a law firm prepares the pricing structure for their services on the basis of a review of prices from important practices. The pricing structure is created with a decrease from this index of 5% to consider the cost of operation and weak brand strength.

Another example would be that of a computer company that wants to place their goods as fashion icons. The company works hard on the sleek design of the products. Thus, they can keep their price 30% higher than the industry average functionality systems that are similar.

5 Stages of the Consumer Decision Making Process

The primary goal of every marketer is to find out how to get inside the consumers’ heads. Marketers can build effective strategies and increase sales by learning how consumers make their decisions.

In 1968 Marketers Kollat, Blackwell, and Engel sketched the process of customer purchase decision making in five steps. This five-step explanation of the customer’s purchasing decision is still widely used in marketing. The five stages are as follows:

Recognition of the need- The first step of decision-making involves identifying a problem. The consumers grow some wants or needs that they want to fulfil. The consumers feel that there is a lack that needs to be addressed. A marketer can benefit largely if they can find out when their target audience grows these wants or needs. This time can be perfect for promoting the services or products to the audience. In this digital age, using quizzes can be advantageous for marketing products.

Searching for information-After the want or need is recognised, the consumers look for information that can help them fulfil the need. In this stage, the consumers primarily use search engines to find the solutions or answers to their problems. Other than the search engines, the consumers also consult with their friends and families to find out these solutions. Generally, recommendations from somebody they know are more preferred by the consumers than the search engines.In this stage, it is possible to get potential customers who are overwhelming and frustrating. This can happen if they can’t find the necessary solution or product they need to resolve the problem. Also, if there are too many choices, they might not be able to make the right decision. Consumers can also gather information from experiences. Some experience that might have helped them to make the right purchasing decision can assist them now as well. The consumers might as well evaluate both the pros and cons of the decision they might take. They need to remember some bad experience. This is something that marketers need to consider.

Assessing the alternatives-Once the consumers have collected all the data, they begin to assess the alternatives to make the best decision. In this stage, two considerations will be taken into account. First is the alternative choices’ objective characteristics, and the second one is the subjective characteristics of the alternative choices. An example would be a subjective issue with a particular feature of a TV, as complained by a consumer. This will be used to derive the product options or ‘evoked set.’ Consumers will prefer to buy these products. In a close second comes the ‘inert set,’ i.e., the products that did not make any impact. The left out the product is the ‘inept set’ that has been rejected by the consumers. Consumers might evaluate the alternatives on the basis of quality, price, or anything else that are significant to them. The customers go through several reviews and compare the products until they find the perfect one who fulfils their need the best.

Making the purchasing decision-When the consumer has considered all solutions that are available for his/her specific problem, they tally up the criteria for the decision and then determine what they will purchase. They have considered the risk factors and are certain about what they want to buy. If marketers stick to the above points, they will be strategically placed for this forthcoming sale.

Evaluating after the purchase- After the purchase is done, the consumers evaluate if their wants or needs have been satisfied. They also assess if it is below their expectations or above it. Every marketer wants a customer to become a lifetime customer. One bad experience can ruin the whole reputation of a company for a specific customer. This experience of a customer will decide if he/she will keep purchasing from the company.

Advantages of Competitor Indexing

The primary benefit of competitor indexing is that after calculating the price index, the impact of the competitors on your sale can be viewed. Other than this, competitor indexing also helps in defining the average price index set by a competitor.

If marketers can correctly define their key competitors, they can easily identify the best products to promote, predict demand and inventory, build competitive yet profitable prices, boost the total sales by operating the associated products, etc. Thus, competitor indexing helps marketers make smart business decisions.

Competitor Indexing Issues

The issue with competitor indexing is that it is involuntary. Also, companies have to attract customers using different methods as a high price will not make the customers interested. There can be low profits as the set price might hardly cover the costs of production.

As competitor indexing does not help in encouraging differentiation, it doesn’t add to innovation in the market. It is not like a planned economy because the competitors are also going by the same price. This technique fails to grab more value.

Simple Price Index Formula

The simple price index is defined as the percentage ratio by which the comparison for a commodity is presented.

Example: Assume a calculator’s price is $60 in 2005, and in 2006, it is $80. If you want to create a comparison between these two prices, 100 is considered as the fixated price of one of the time period (say the price of the device in 2005). Hence, the base period is 2005, and the base price is $60. In the same way, the current period is 2006, and the current price is $80. After converting the current price into a percentage related to the base price, we get the following: 80/60*100=133.33%. This percentage is known as the simple price index or price relative. So, the simple price index formula can be written as,

Price Index= Competitor price/ your price*100%

Competitive Pricing Examples

Given below is an example of competitive pricing:

Two competitive parties who belong to the same industry are more likely to keep an equal charge. However, company A can compete better with others by advertising the features of the product and highlighting why it is better.

Many corporate giants use competitive strategies to make entry into a new market. In such a condition, it becomes necessary to keep the price equal even if the cost of production is higher. It is essential to adjust the prices of packaging, advertising, marketing, and distribution if the production cost is higher.

A pricing strategy is usually based on the one used by competitors. It is mainly because the price is an essential factor for buying a product, and the cost of switching between products is significantly low. In other cases like software, it is not possible to fix prices just by considering the behavior of the competitor.

The competition factor cannot be taken as a central pillar for deciding prices. When it is about setting the price, marketers should consider the value that the product supplies, instead of thinking about the product.

As the pricing is a very powerful strategy, it can bring benefits or losses to a business. It is needed to use an appropriate strategy.

Now that you know about the competitor indexing in detail, it will be much easier for you to write papers on all competitor indexing topics using the information given above.

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