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PRICE INDEX

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Glossary

Definition

A price index is a composite indicator that measures a retailer’s pricing position relative to its competitors for a given basket of products. It helps answer the question: “Am I 5% more expensive or 3% cheaper than the competition?” The index is generally expressed on a base of 100, where 100 represents the average market price or the price of the benchmark competitor.

Why it's important

  • Driving competitiveness: The price index provides a clear, data-driven view of your market position—essential for adjusting your pricing strategy.
  • Track changes over time: by calculating the index weekly or monthly, you can quickly identify deviations and opportunities for repositioning.
  • Internal communication: The price index is a KPI that all teams (management, procurement, marketing) can understand, helping to align decisions.

A concrete example

A retailer calculates its weekly price index based on a basket of 200 representative products. It compares its prices to those of its three main competitors. Week 1: index at 102 (2% more expensive than the average). After adjusting 50 strategic products, the index drops to 99 in Week 2 (1% cheaper). The retailer continuously monitors this indicator to maintain its “competitive pricing” positioning while preserving its overall margin.

How to calculate it

Traditional method:

  1. Select a basket of representative products (often the key performance indicators plus a sample of the product range)
  1. Compare prices at your store and at competitors' stores
  1. Calculate the total cost of the shopping cart for each store
  1. Calculating your own basket index: (Retailer's price / Benchmark competitor's price) × 100

An index of 105 means prices are 5% higher. An index of 98 means prices are 2% lower. Some indices weight products by sales volume to better reflect the actual customer experience.

Common Mistakes

  • Non-representative shopping basket: an index calculated based on 30 randomly selected products has no value. The shopping basket must reflect customers' actual purchases.
  • Ignoring promotions: Comparing listed prices without taking current promotions into account skews the index. Promotional prices must be included.
  • Single index for all channels: pricing may vary between online and in-store. Calculate separate indices if necessary.

Learn more

  • Research & Data: Competitor price tracking to automate the calculation of your price index and monitor your market positioning in real time.
  • Solutions: Pricing Analytics to view your indices by category, geographic region, or channel.
  • Tip: Use operational pricing to define your index targets and establish monitoring processes.
  • Resources: See our pricing FAQ for other key metrics related to pricing management.

No. If a competitor is out of stock, it skews the comparison. Temporarily exclude it or replace it with an equivalent product.

Weekly for highly competitive sectors such as food and electronics. Monthly for more stable markets such as home improvement and furniture.

No, it complements it. The index provides a broad overview, but we also need to analyze the variances on a product-by-product basis to identify specific areas for improvement.

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