ZIMSEC O Level Business Studies Notes: Marketing:Competitor oriented pricing

  • This is when a firm sets the prices of its products in relation to those of competitors
  • Instead of charging prices based on costs or customer perceptions prices are based on what the competitors are charging
  • This typically involves charging prices that are in line with those of competitors
  • The greater the competition in the market the greater the pressure to keep the prices in line
  • In a theoretical perfect competition market all firms charge the same price
  • In reality businesses charge prices that are not very different
  • In a market that is dominated by a few large firms for example Zimbabwe’s Mobile Network Market
  • Business rivals for example Econet, Telecel and Netone carefully study the prices being charged by rivals
  • Businesses set their prices in accordance with those of their rivals
  • It would be dangerous to charge a very low price as this could result in destructive price wars
  • Competitive price cutting is designed to weaken and destroy rivals
  • Destroyer pricing-is a policy of aggressive price cutting with the primary aim of weakening and eliminating rivals
  • Penetration pricing-can also be viewed as a form of competitor based pricing in addition to it being a customer oriented pricing strategy
  • Destroyer pricing can be used as a barrier entry by monopolies and oligopolies

To access more topics go to the O Level Business Notes

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