How Your competitors Are Setting Prices /
There is some question as to whether cost-plus pricing or competitive pricing is the most prevalent.
Nagle and Holden (2002) say cost-plus pricing is the most prevalent. This strategy adds up your costs then tacks on an extra percentage of the total for profits. Use of this (generally terrible) strategy is often the result of the pricing decision being left to the finance department or to an
entrepreneur who doesn't understand pricing.
Noble and Gruca (1999) found competitive pricing was used by three times as many companies they studied as any other strategy. They define competitive pricing as trying to match or come in close to the prices of the competing products already on the market.
If you had to pick one of the two above, pick the second one. Match-your-competitors pricing will lose you less than cost-plus.
But why use either?
If your competitors are small to medium-sized compagies, they re likely using one of these false strategies already. So you can gain a substantial advantage over them by using better strategies. If your competitors are large companies, well, you're already at a disadvantage.You don't want to increase it !