The most apparent use of relative pricing is to compare the prices of two similar and often competing products. It also finds use to express the ratio of a product price to the weighed average price of all similar products, which reveals whether the product is overpriced, under priced, or on par with industry standards.
Using relative pricing to compare product pricing helps determine product positioning, or in other words to make decisions whether to set prices above, below, or at par with the competition or industry average. For instance, a premium product needs to be priced higher than the average market price for similar products, and new entrants trying to capture market share would obviously need to price the products competitively, at less than average prices.
Relative pricing also provides flexibility to set up minimum and maximum charges for a product in various currencies. This helps prevent middlemen undercharge or overcharge for the products.
Using relative pricing to increase sales however works only in a market where prices remain visible, customers display a high sense of price awareness and maturity to understand product characteristics, and all products of varying prices are available freely.
The main aim of market neutral or relative value strategies is profiting from pricing and market inefficiencies, and the attractive pricing of fake goods relative to the genuine products could be an incentive for purchasing imitations. The application of relative pricing helps negate such profiteering and inefficiencies, boosting customer confidence and subsequently sales in the long run.