As Prices Increase, Rebuy Rates Typically Decrease

When you hire me for a Price Impact / Annual Forecast project ($4,900), we evaluate the impact of pricing changes on categories over a three-year period of time. The data is noisy, understandably so, but leads us in a direction where we can measure the impact of prices on rebuy rates.

Here's an example for a company with seventeen categories across three years. I removed outliers, the relationship is not great but there is something here.

As prices increase, rebuy rates decrease ... as expected. In this case, if prices increase by about 20%, rebuy rates decrease by about 11%.

This is where things get interesting. If you lower the rebuy rate but you increase prices, you "can" make up the lost volume ... you can't make up the lost customers.

I model the impact on customer spend as well. Predictably, if prices increase, customers who do purchase spend more money.

We now have the pieces necessary to simulate what might happen in the next year if you are forced to increase prices. More on that topic tomorrow.