Measuring Impact of Price Increases

Yeah, I've heard y'all ...

• "We have no choice but to pass cost increases on to our customers. If a $50 item has a $20 cost of goods and now that item costs $27, we have to pass the additional $7 on to the customer. It's that simple."

Well, maybe. But you're going to do what you feel like you have to do, so do it.

But at least you need to know what you are doing to your business as a consequence, right?

A simple analysis looks like this.

• By merchandise category, measure rebuy rates into the category last year, and measure average price per item purchased within the category last year.
• By merchandise category, measure rebuy rates into the category this year, and measure average price per item purchased within the category this year.
• Fit a line through the relationship. In other words, plot price change (TY vs. LY) on the x-axis, plot rebuy rate change (TY vs. LY) on the y-axis.

The relationship should look like this:

You easily see two trends.

• Rebuy rates are down about 4% independent of price changes (it's where the orange line crosses the 0.00 vertical line on the x-axis).
• A 10% increase in prices yields a 4% decrease in rebuy rates.

This is something that all of you can do ... the analysis is easy and can be finished within an hour, and you'll have two important answers to the impact of pricing on your business.

If you don't have the resources to do this, contact me (kevinh@minethatdata.com) and I'll perform the analysis for you.