A price index compares a retailer's prices to a benchmark—typically the market average or a specific competitor—expressed as a percentage. A price index of 110 means pricing 10% above the benchmark; 90 means 10% below. This enables apples-to-apples comparison across different product assortments.
Price indices are calculated on comparable products (same or similar items across retailers) rather than entire catalogs, since different product mixes make direct comparison meaningless. The methodology for determining "comparable" products significantly impacts results.
Tracking price index over time reveals competitive dynamics. A rising index indicates a brand is becoming more premium or less competitive, while a falling index suggests price aggression. This metric is valuable for both internal pricing decisions and competitive intelligence.