Which pricing strategy involves setting prices based on the prices of competitors?

The pricing strategy that involves setting prices based on the prices of competitors is competitive pricing. This approach focuses on analyzing the pricing strategies of rival businesses and positioning product prices accordingly, often aiming to match or slightly undercut those prices to attract customers.

Competitive pricing is particularly effective in markets where products are similar, allowing businesses to remain competitive without engaging in excessive price wars. This strategy does not rely solely on the cost to produce the goods or the perceived value but instead emphasizes the broader market environment and competitor actions. By keeping an eye on competitors, retailers can make informed pricing decisions that can help maintain or increase market share.

While premium pricing sets higher prices to reflect the perceived prestige of a product, and value-based pricing emphasizes the benefits and value perceived by customers, these strategies do not specifically benchmark against competitors’ prices. Cost-plus pricing, on the other hand, calculates prices based on production costs plus a markup, which also does not consider competitors' pricing. Therefore, competitive pricing is the appropriate choice for aligning prices with market expectations driven by the competition.