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Definition: Follow the Leader Pricing
A follow the leader pricing is a pricing strategy in which a player in the particular market tries to follow the pricing strategy of the most dominant player in that segment i.e. if the leader increases the price of good to a particular level the player also increases the price of its good to that level and vice versa.
If we look from the perspective of a company then follow the leader pricing is not suitable for start-ups and small companies. This is because it is difficult for them to achieve economies of scale and therefore price the product at the same level as that of the largest competitor. On the other hand bigger players have significantly deep pockets which gives them the leverage to price the product competitively even if it means burning the profits.
Recent trends in Ecommerce
Recently we have seen a boom in the ecommerce industry with players like Flip kart and Snap deal taking the lead. The latest entrant has been Alibaba with its tie up Pay tm. All these players more or less charge almost the same prices for similar good. It has also been noticed that a slash in the price of one of the product by one of the competitor is followed by slash in the price by other competitor. For e.g. - Flipkart came up with the idea of big billion day sales and the same was adopted by Snap deal and Amazon under the umbrella of different names.
Alternative to “Follow the leader pricing”
For start-ups and small business which can’t follow the trends of price change due to the lack of deep pockets should focus on differentiating the goods via services offered along with the good. For that matter a minor tweak in the goods itself also work for many of the players.
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