The competitive price index is a relative comparison of the prices at a retail store with those in another store. This is a unit free number that represents how expensive your store is compared with your competitors. This is generally calculated for the same or similar products. However, values at aggregated levels are also used to understand the competitive price positioning of a store.

Note:  The competitive price index measures how expensive your products are relative to the competition and is defined as:

CPI = Your price / Competitor's price 

If you buy certain items from Reliance Fresh, they cost you ₹1,500. If you buy the same products from Big Bazar, they cost you ₹1,450.

So, the competitive price index of Big Bazar w.r.t. Reliance Fresh would be 1450/1500 = 0.97.

If at any point in time in the video, Ujjyaini implies any other understanding, please ignore that.

Now, how do you collect information about your competitors? For an online business, there are website crawlers. However, how does an offline retail store compare their competitive price positioning? There are mainly two ways:

1. Market survey or panel research by market research companies is one way to get the information. These survey agencies appoint random sample customers, observe their buying decisions, and monitor which products are bought at which prices. Accordingly, the competition price index is prepared.
2. Basket analysis is another way, wherein a retailer can decide various basket combinations that are commonly purchased together and go to its competitor stores to shop for the same baskets. This way, it can compare its own prices to the competitors’ offerings. This is required to be done periodically to get a better sense.