COMPETITIVE BENCHMARKING
Definition
Competitive benchmarking is the systematic comparison of prices, product assortments, and promotional offers between a retailer and its direct competitors.
More structured than a simple price monitoring system, it incorporates summary metrics (price index, promotional rate, product assortment depth) that enable companies to manage their price image and competitive position over time and by category.
Why it's important
- Objectively assess pricing strategy: replace perceptions with quantitative metrics derived from a panel of competitors.
- Managing by category: A department-by-department benchmark reveals where we are competitive and where we need to make adjustments.
- Internal communication: A shared benchmark dashboard with the sales department helps facilitate decision-making.
Example
A fresh food distributor compiles a monthly benchmark report on 7 competitors (4 brick-and-mortar retailers, 3 online grocery retailers) based on 1,200 SKUs.
The dashboard shows an overall price index of 102 (2% higher than the market average), with variations by department: 95 for dairy (very competitive), 108 for meat (expensive), and 100 for fruits and vegetables (in line with the market).
Targeted portfolio adjustments make it possible to bring the overall index back to 99 within 6 months.
Mistakes to Avoid
- Benchmarking on too broad a scale: including irrelevant competitors skews the metrics.
- Unweighted index: Simply averaging prices gives a bestseller the same weight as a niche title, which skews the analysis.
- Static benchmark: A quarterly benchmark is too slow for a market that changes every day. Aim for at least a weekly update.
Frequently Asked Questions
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