Want to Know Your Competitors’ Prices?

You May Already Have the Information

intelligence on competitors' prices may be close at hand

If only you knew what your competitors are charging. How many times on any given day does that phrase get uttered in a corporate boardroom, on a sales call or in a marketing strategy meeting? Knowing what your competition is charging would take so much of the guesswork out of your daily pricing and marketing decisions. It may come as a surprise, then, that critical information capable of revealing competitors’ prices may be very close at hand – in your own purchase history.

Is there a “Market Price” for COGS?

Since you do not have direct access to your customers’ prices, the challenge is to model likely competitor activity based on incomplete information. A good place to start is with costs – specifically cost of goods sold (COGS). This is typically a key input in pricing models. Knowing a competitor’s COGS would provide critical intelligence in determining what prices they are offering in the market.  The trick is to accurately infer the “market” price a competitor pays for their inputs (i.e. their COGS) from the information contained in your own transaction data.

Birds of a Feather…

Advanced analytics can help in this regard by identifying patterns, or correlations, between similar products within a category. Individually, of course, the price of a commodity like milk or sugar will fluctuate over time. However, like products tend to move together. For example, you may find that within the  dairy category products like milk, butter, cream and cheese all tend to follow the same pattern in price movement.  Whether prices go up or down, they tend to do so with the same magnitude and frequency. Therefore, it is possible to infer an expected market cost for each of these products by observing their price correlations.

Spot the Outlier

If we are able to form confident expectations about the price movements of key COGS inputs from correlation patterns, then we should be able to flag anomalies – deviations from our expectations that may tell us whether our cost assumptions about a certain product are out of line with the “market”.  For example, we may notice that the price of milk has increased by 1% whereas the prices of butter, cream and cheese have all gone up by 2%.  We may further infer that our competitors are paying this “market” price for milk and adjusting prices to their own customers accordingly. This in turn, allows us to compare our own COGS to the expected market price and adjust our customer pricing to win additional business or capture greater value without incurring additional risk.

The margin for error in foodservice is narrow. Price too low and you risk sustaining margin erosion. Price too high and you increase the chance of losing a sale to a competitor. Having the information at hand to infer what your competitors are factoring into their pricing models will put you in a stronger position to set your own offers at the optimal level.

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