Short answer: a competitive pricing analysis compares your prices to your competitors’ on the same or comparable products, so you can see where you are expensive, where you are cheap, and what to do about it. The core number is a price index: your price divided by the average competitor price, times 100. Above 100 you are more expensive, below 100 you are cheaper.
Below is a step-by-step way to do one for a small online shop, with a worked price index example and what to do with the result.
How to do a competitive pricing analysis, step by step
1. Choose the products
Not the whole catalog. Start with 10 to 30 products: your bestsellers, the ones you advertise, and the ones shoppers are most likely to compare. The long tail rarely changes a decision.
2. Choose the competitors
For each product, the two to five stores a shopper would actually open next to yours: a marketplace listing, a big-box retailer, and one or two independent shops like you. A competitor you never lose a sale to is not worth tracking.
3. Collect the prices
For a one-off analysis, copy the advertised price from each product page into a sheet, with the date. For an ongoing one, use a competitor price monitoring tool so the checks happen without you. Either way, record the date: a price without a date is not data.
4. Make the comparison fair
- Same item. Same model number, size, and condition. If items are only similar, note it and read the result with care.
- Pack size. Compare per unit when one store sells a 3-pack and another a single.
- Shipping. A $42 item with $8 shipping competes with a $50 item that ships free. Decide whether you compare list price or delivered price, and do it the same way everywhere.
- Promotions. Note when a competitor is on a temporary sale, so one weekend promo does not set your list price.
5. Calculate a price index
For each product:
Price index = (your price ÷ average competitor price) × 100
Worked example: you sell a pair of headphones for $49. Three competitors sell it for $45, $52, and $47. The average competitor price is ($45 + $52 + $47) ÷ 3 = $48. Your price index is ($49 ÷ $48) × 100 = 102.1. You are about 2% more expensive than the average.
| Product | Your price | Competitor A | Competitor B | Competitor C | Average | Index |
|---|---|---|---|---|---|---|
| Headphones | $49.00 | $45.00 | $52.00 | $47.00 | $48.00 | 102.1 |
| Charging cable | $12.00 | $14.00 | $15.00 | $13.00 | $14.00 | 85.7 |
| Phone case | $25.00 | $19.00 | $21.00 | $20.00 | $20.00 | 125.0 |
To get one number for a category or the whole shop, average the product indexes, or weight them by revenue so your bestsellers count more. The example numbers are made up to show the calculation.
6. Read the result
- Around 100: you are priced with the market. Compete on shipping, service, and content.
- Well below 100 (the cable at 85.7): you may be leaving margin on the table. Check whether a small increase still keeps you the cheaper option.
- Well above 100 (the case at 125): either you have a reason people pay more — brand, bundle, faster delivery — or this product is losing sales, and any ads on it are expensive.
Read it per category, not only overall. Being 10% above the market on accessories and 5% below on the main product can be a perfectly good strategy.
7. Decide your competitive pricing strategy
- Match the market. Keep the index near 100 on products shoppers compare most.
- Price just below. A small gap under the leading competitor on hero products, only where the margin can carry it. Watch for starting a price war.
- Premium. Stay above 100 and make the reason visible: warranty, support, bundle, delivery.
- Value. Stay near or above the market on price, and win with a better package for the same money.
Most small shops mix these by product. What matters is choosing on purpose instead of reacting to every competitor change.
8. Repeat on a schedule
A pricing analysis is a snapshot. Competitors change prices, run promotions, and launch new models. Re-run it monthly for the whole list, and check the products you advertise daily or weekly. That ongoing part is competitor price monitoring.
Keeping the analysis up to date with PriceSense
PriceSense handles step 3 on an ongoing basis. You add a product and the competitor URLs next to it, and it checks them daily on paid plans or weekly on Free, then emails or pushes when an advertised price changes. Paid plans keep price history (30 days on Premium, six months on Pro), so you can see whether a competitor’s price is a promotion or the new normal.
It does not calculate a price index, normalise shipping or pack sizes, or change your prices. You still do the analysis; PriceSense keeps the inputs current. See the three plans.
Watch a competitor page yourself
Free covers one product and three sellers. Email and app alerts when the price changes.
Questions we get
What is the price index formula?
Price index = (your price ÷ average competitor price) × 100. An index of 100 means you are priced exactly at the competitor average; 110 means you are 10% more expensive.
How many competitors should I include?
Two to five per product: the stores a shopper would actually compare you with. Adding every seller on a marketplace makes the average less meaningful.
How often should I run a competitive pricing analysis?
A full review monthly or quarterly, and ongoing checks on the products you advertise, because a snapshot goes stale as soon as a competitor changes a price.
What is the difference between competitive pricing and competitor-based pricing?
They are usually used for the same thing: setting prices with competitors' prices as the main reference, rather than only your costs or the value to the customer.