The Price Index is the metric that shows your price positioning in the market. We’ll talk about how observing the price index helps in improving sales, controlling the positioning of your brand, and finding loopholes to rise among competitors. More to that, we’ll learn how to measure it. If you’re ready, let’s dive in.
What is the price index (PI)?
For ecommerce businesses, price index refers to the metric that illustrates how your products, categories, or brands are positioned in the market. This information empowers business owners in so many aspects but before jumping into that, let’s learn how to calculate the price index.
As a first step, you must track competitor prices to pinpoint your positioning in the market. Who gives the best prices and how can you beat them?
Price index calculation for a single product
For a single product and competitor, it’s quite simple.
Divide the competitor’s price by yours and multiply it by 100.
To determine the price index for a single product for many competitors, add up all competitor price indexes and divide it by the number of competitors.
How to control your positioning in the market?
When your price is way below the market average, you certainly attract demand. However, a high demand without a good profit margin means that you’re leaving a lot of money on the table.
An essential part of a successful business strategy is optimizing the price-demand relationship. You must find the balance point where your business generates the most revenue.
Offering iPhone 11 for $550 will attract so many customers and a lawsuit from Apple besides the fact that it’ll cut into your profits.
A more logical approach would be taking competitor prices into account. You can set the iPhone’s price 5% cheaper than its PI, and still boost your sales. PI is your reference point to make sure you’re offering a below-average price without seriously cutting into profits.
Furthermore, when you want to test prices to find…
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