Competitor Price Index Basics
Competitor Price Index (CPI) is usually an abbreviation of consumer price index. As there are multiple ways that different organizations can calculate their indices, Sniffie calculates 4 different indices for you in your Price Matrix and widgets. These are the four indices which Sniffie calculates:
Competitor price index (CPI)
Product price index (PPI)
Market price index (MPI)
Full market price index (full MPI).
Note: Sniffie CPI utilizes your store’s matched product basket sum as the base. If you use reference store with 0 prices, your indices may look weird. Solution is to use non-zero prices, like RRP prices for reference.
What are the differences between these four indexes?
The competitor price index is calculated from products that you and your competitor have in common. It is the sum of all product prices that you two have in common and have matched together. Your website is always shown as 100 and competitors are monitored against that.
Basket sums are sums used for comparing your indices with your competitors. Basket sums will only include matched products. Every competitor's basket sum is compared to your basket sum. That is, we divide their basket (the products you have in common) sum with your basket sum and convert this to an index.
Values <100 mean that the competing basket is cheaper than your basket. Values >100 mean that the competing basket is more expensive than your basket. If your competitor has a CPI of 100, your baskets are priced similarly. 1 unit in an index represents 1% difference. Meaning if a competitor index is 98 they are 2% cheaper.
Sniffie Product Price Index (PPI) compares the average product index to your competitors
Instead of adding all product prices in your basket together, the Sniffie (product price index) PPI is calculated by dividing your competitors’ product’s price with your price for each individual product. Then the average of these indices is calculated for your competitor.
Values <100 mean that the competing basket is cheaper than your basket. Values >100 mean that the competing basket is more expensive than your basket. If your competitor has a PP of 100, your baskets are priced similarly.
Note: the PPI will overstate the importance of cheap but very differently priced products in the index calculation. Thus, in most cases you are better off with utilizing the CPI in your decision making. However, since certain organizations utilize calculations such as the Sniffie PPI in their decision making, we are happy to provide this value as well.
Sniffie Market Price Index (MPI) utilizes the average sum of competing baskets as its base level
The Sniffie market price index (MPI) is calculated as follows. The average sum of all product prices in your competitors’ baskets is used as the base level of 100. We call this the market basket. Your basket is then compared to the market basket. The calculation is done by dividing the sum of product prices in your basket by the average sum of product prices in the market index.
Values <100 mean that your basket is cheaper than the market basket. Values >100 mean that your basket is more expensive than the market basket. Value 100 means that your basket is, on average, priced similarly to all other baskets on the market
IMPORTANT: Why do we exclude your basket from the market index?
If your basket is priced at a very low or a high rate compared to the market average, your basket’s inclusion would skew the market index calculation. By excluding your basket from the market index, Sniffie can provide information on how your basket compares to all other baskets in the market.
Perhaps you still want to include yourself to the market? Worry not, Sniffie full market price index takes into account your store to the market as well. Market price indices are calculated for all your competitors by default.
You control the threshold of products included in the CPI and market index calculations
Since basket indices are only calculated from confirmed matches, the more you match, the more products can theoretically be included in a basket. Since not every website sells all of the products in your basket, it can be difficult to achieve an exact basket with all products.
In order to combat this, we only use your matched products as the basis for index calculation. If you sell 10 products and your competitor sells 20 of which 10 are exact matches with your products, only those 10 will be included in the index calculation.
To make the calculation transparent, Sniffie’s Price Matrix displays all the items which are included in index calculations. When you apply any filter your Price Matrix will be updated, thereby updating your indices based on the available products in the matrix.
NOTE: When substitutes are included, all indices will be calculated with substitute values as well.
Sample of a Competitor Price Index Matrix
How to use indexes for decision making
The easiest way to use indexes as a guiding tool for pricing is to use categories as a base filter, and filter down from there to a level where pricing in that group of products has a specific relevance. As an example, let’s look at a case dealing with iPhones. If you want to know if your iPhones are priced correctly you can drill down to the latest iPhone model. Then compare other sellers via your indexes and box plots. This will give you a view of the market price spread and whether or not you are priced higher or lower than your competitors on a categorical level, as the index takes into consideration all iPhone 7 products no matter what size or color those are.
How are indices calculated when a certain price has not been updated
In order to provide a complete picture, Sniffie utilizes the last known price within the period of the calculation. If no price point has been extracted within the period, Sniffie will treat the product as a “missing product” and estimate a price point for that product. Of course, this is done only if the product is included in the analytic parameters after filtering.
You will always see the products from which indices were calculated in the Price Matrix.
Remember to set your website as a reference website in your account settings before utilizing indices in your decision making. If you have not set your website as a reference website in your account settings, the indices will be calculated from the website that is set as the reference store, shown green in the Price Matrix.