Should you match a competitor's price? A simple framework

Seeing that a competitor is cheaper does not mean you should match them. Seeing that you are cheaper does not mean you should relax. The data only helps if you have a way to turn each gap into a decision. This is a simple one.

Step 1: Measure the gap

Express each gap as a percentage of your own price. Small gaps and large gaps call for different thinking:

• Under about 3 percent. Usually noise. Shoppers rarely notice, and chasing it burns margin and attention.
• About 3 to 10 percent. Worth a look for products where shoppers compare closely.
• Over about 10 to 15 percent. Either you are leaving money on the table or they are doing something you should understand. Look at every one.

These bands are starting points, not rules. In a thin-margin category 3 percent is a lot.

Step 2: Confirm you are comparing the same offer

Before reacting, check that the two offers match: same product, same pack size, in stock, similar shipping and returns. Many "undercuts" disappear at this step.

Step 3: Decide match, hold or raise

Match when the product is a commodity, shoppers clearly compare it, and you can afford the margin.

Hold when you offer something they do not: faster shipping, expert advice, a bundle, a warranty. Say so on the page instead of discounting.

Raise when you are well below the market with no reason to be. A price that is 15 percent under every competitor on a steady seller is often a gift to shoppers, not a strategy.

Step 4: Set a margin floor

Decide for each category the lowest price you will accept, and never match below it. A floor turns a stressful daily judgment into a rule.

Step 5: Review on a schedule

Weekly is enough for most catalogs. A fixed review beats reacting to every alert, and it keeps you from drifting into a price war nobody planned.

A note on doing this independently

Everything above is about deciding your own prices from information that is public. Agreeing prices with a competitor, or signalling to them so that you both raise, is a different matter and can be illegal in many places. The FTC's case against Amazon, in which the agency alleges a pricing tool was built to raise prices where rivals would follow, shows that regulators are paying close attention to pricing algorithms (BCLP overview). Amazon disputes those allegations. This is general information, not legal advice; if you are unsure, ask a lawyer.

Make it routine

Tensorbasis shows your price against the matched competitors for each product and flags the biggest gaps, so the weekly review takes minutes. The decisions stay with you.