What defines competitive pricing?

Competitive pricing is defined as setting prices based on the prices charged by competitors for similar products or services. This strategy involves analyzing what competitors are charging to ensure that a business's pricing is both attractive to consumers and competitive within the marketplace. By aligning prices with those of rivals, a business aims to capture market share, draw in price-sensitive customers, and respond effectively to competition.

The other options represent different pricing strategies. Pricing products higher for premium quality suggests a differentiation strategy where higher prices signal better quality rather than competitive positioning. Reducing prices to clear excess inventory focuses on inventory management rather than competitive dynamics. Establishing prices through customer demand emphasizes the importance of understanding consumer behavior and willingness to pay, which does not inherently consider competitor pricing. Therefore, competitive pricing is specifically about setting prices relative to the competition, making it the most accurate option in this context.