Everything you need to know about the alignment strategy

Do you want to apply an alignment strategy, but don’t know if it’s the right solution for your product? Learn more about this pricing strategy and how PricingHUB can help you optimise your pricing thanks to its artificial intelligence.

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What is an alignment strategy?

An alignment strategy is a pricing strategy, i.e. the setting of a price, with the aim of gaining a foothold in a market by using prices similar to those of competitors in order to avoid a price war. In other words, a company wishing to enter a market chooses prices that are similar to or slightly lower than those of other companies and competitors.
Although this strategy may seem logical in certain situations, it should be noted that it can only be implemented if the products are virtually identical, in other words if they are considered to be substitutes. These products must also be sold to the same types of customer. Otherwise, alignment can be risky, as the market may not accept your prices or you may not be able to gain market share from your competitors.

Why choose an alignment strategy for your business?

Applying an alignment strategy has a number of advantages and disadvantages for businesses. But the main advantage of developing this type of strategy is to quickly establish a foothold in a market, and a competitive one at that.

The advantages of an alignment strategy

Avoid disagreements with competitors

By applying a price close to those of your competitors, you avoid price wars and price-related disputes with them. In fact, avoiding price wars can be an advantage when you are setting up in a market, as you will have a certain amount of room to maneuver. You will be able to modify and adjust your prices following the launch, without necessarily being frowned upon by other competing companies. On the other hand, positioning yourself well below the usual prices, for example, can create such an imbalance in the market that your competitors will want to concentrate on undermining your strategy. This can be a handicap when entering a new market.

A neutral price for a neutral positioning

Applying a price close to that of other companies puts you within the market norm. In this way, you don’t take any risks, since if you were to charge more, you would run the risk of appearing far too expensive and unattractive; if you were to charge less, you would quickly be seen as a low-quality offer in the eyes of customers, and would also fail to attract the clientele you are looking for.

An easy pricing strategy to save time

This choice of alignment can also be a question of saving time. This solution avoids incurring additional costs to determine the more or less optimal price for the product or service to be included on the market if you don’t have a pricing ia. In this case, your competitors will have already carried out the pricing analysis for you and will have provided you with all the information you need to take the temperature of the market and set the ‘right’ price.

The disadvantages of the alignment strategy

A risk of loss

Although this strategy is best described as a risk-free strategy, it is no less risk-free. As long as your competitors are doing well and you follow their prices, everything will be fine. On the other hand, if prices are no longer in line with demand, then you risk going under with your competitors and selling at a loss.

Complex differentiation

By applying aligned prices, it is complicated to emphasise a top-of-the-range image or, on the contrary, one that is within the reach of consumers. Companies that follow the price trend don’t differentiate themselves, and the quality of their products or services may be perceived as lower than they are. What’s more, if your competitors have been on the market for a long time and have already built up a loyal customer base, it’s hard to imagine you being able to win back a share of their market by offering identical products at the same price. Customers aren’t going to risk trying new products they know nothing about when they’re happy with what they have now.

Complex price adaptation

Unlike the skimming or penetration strategy, it is complicated to adjust your prices upwards or downwards in line with customer demand. Aligning prices with those of competitors limits this price flexibility. So you need to consider both the short-term and long-term impact of this alignment strategy.

Obtaining a price not necessarily in line with objectives

Finally, implementing such a strategy and setting prices based on the competitive offer is not necessarily the best solution for achieving your commercial objectives. In fact, the use of pricing tools now makes it possible to define an optimal price that can evolve to meet the objectives you have set, taking into account the price elasticity of demand. As these calculations take into account a huge number of parameters, it was virtually impossible to do them manually.

How do you implement an alignment strategy?

The first point to consider is whether the product you are selling allows you to do so, and whether it can be aligned with those of competitors in the markets you wish to penetrate. This leads to questions of profitability such as: does this price cover your marketing and production costs? Would it be profitable to align? How will this affect the price image of your product or service?
Next, it’s important to be sure of the expected profitability of the product and its profit margins. This will help you set a floor price.

Finally, take the time to analyze your positioning in relation to your competitors. This will enable you to be more effective later on, before throwing yourself headlong into tedious and pointless strategies.

Examples of alignment strategies

To make this concept clearer, we can take the example of consumer products. When you buy pasta, for example, the prices of the packets are relatively identical and do not exceed a certain price. So if you want to enter this market, an alignment strategy can be an effective way of gaining credibility and popularity with the general public before you actually differentiate yourself.

Implementing an effective alignment strategy with PricingHUB

Are you looking to implement an alignment strategy for your product catalogues? Thanks to its rule-based pricing system, Pricing Hub’s interface lets you adjust your prices automatically using an algorithm that adapts to your predefined objectives. Thanks to this, you can easily and automatically adjust the price of different SKUs or SKU portfolios to bring you into line with price variations in the competition.

What if you used the power of AI to determine a better pricing strategy?

Have you ever considered using artificial intelligence to set prices? In addition to our rule-based pricing engine, we offer a target-based pricing system. By defining your business objectives for a selected portfolio of products, our artificial intelligence carries out continuous tests to define the price elasticity of each SKU. The platform then suggests the optimum price to achieve your business objectives. You can then decide whether you want to apply the change. A system of rules is in place to automatically accept or reject these price proposals, which vary over time.
These tests, carried out by our artificial intelligence, will enable you to move away from this logic of alignment and define a strategy that is more in line with your business objectives.
Don’t wait any longer – trust PricingHUB’s AI to unleash the full power of your pricing.