Large retailers: what is a competitive pressure index?
The CPI, or competitive pressure index, is a statistic used to measure in an objective and reliable way the competitive pressure applied on a point of sale in a given area. The CPI can also be used to compare shops. But how is it calculated? What can we learn from it? Mag de la Com’ gives you all these answers by answering 4 main questions:
How is competitive pressure index expressed?
The competitive pressure index is able to estimate the competitive pressure applied on a neighborhood in relation to the overall offer of all the shops in the area. In fact, each neighborhood must be seen as a «cake» to share between all the competitive brands: as the number of people sharing the cake increases, the pieces get smaller.
The competitive pressure index is referenced to around 100. If it is estimated at being below 100 then the point of sale faces low competition and logically competition decreases the closer it gets to 0. However, if the CPI is superior to 100 then the pressure applied on a point of sale is superior to the average and competition gets stronger the higher it goes.
What is the calculation of the CPI based on?
The competitive pressure index isn’t calculated randomly. It is based on a complete study of the point of sale in question and on three principal pieces of information:
- The distance between each competitor in the neighborhood, in terms of driving time or physical distance.
- The sales area of the different competitors, which determines their ability to spread their influence and their attractiveness.
- The type of competition, direct or indirect, and whether a) the competitors have the same product range and the same kind of brand b) they have a different range but the same kind of brand, and c) they have a different kind of brand but the same activity.
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When is the CPI calculated?
Knowing your business’s competitive pressure index is very useful. It enables you to define attractive zones or pinpoint priority areas for communication.
Within a network of brands, the CPI can also help point of sales compare themselves with each other and obtain explanations for any possible under-performance.
Furthermore, the competitive pressure index can be used in a pre-implantation process, prior to the approach in order to find an area where there would not be many competitors. Equally it can be used when planning to open a point of sale by helping to determine a location that would not weaken another.
How to react after calculating the CPI of a point of sale?
The competitive pressure index is one of the elements that guides communication strategy – but it isn’t the only one. A point of sale can either:
- Adopt a defensive position, defend its territory, and concentrate on «strong» areas – for example, by relying on long-term advertising.
- Choose an offensive communication strategy by «attacking» the areas where the CPI is high in order to obtain market share in territories dominated by competitors.
In any case, the calculation of the CPI cannot be the only element used to determine your communication strategy. It is also necessary to study the visibility, exclusivity and accessibility of a point of sale as well as conducting a study of the catchment area.
If you wish to know the competitive pressure index your business is faced with and the best communication strategy to choose, contact the experts of CoSpirit Mediatrack!