6 Key Factors in a Pricing Analysis

Pricing is a key component of a market analysis, and understanding pricing is even more important right now due to the impact of inflation.  

Without a comprehensive understanding of how prices are trending, you cannot have an accurate view of market growth or the overall competitive landscape. A pricing analysis allows you to “see where the real growth is coming from,” according to Matthew Hurley, a long-time research analyst and construction industry expert at The Freedonia Group.  

However, if you are conducting the analysis yourself, you may find that pricing can be quite complicated once you are knee-deep in research. You must carefully consider a variety of factors, or you could end up with skewed data and faulty conclusions. 

To give you a quick overview of pricing analysis methods, here are a few key guidelines that Freedonia industry analysts use in their studies to ensure complete and accurate data. 

1. Real (Volume) vs. Value Growth 

In your analysis, start by distinguishing between real volume growth vs. value growth. “It's always best practice when you're making a model to do it in volume terms or real dollar terms, and then apply the average pricing to get your market value,” Hurley explained.  

For example, a plastic pipe producer may report that their net sales rose 66%. But the real story is that volume only increased 5%, but due to inflation, average prices rose 55%, driving most of the revenue growth. Although the revenue growth appears substantial, it is primarily due to price increases rather than significant volume expansion. 

When analyzing the numbers a company reports, dig deeper for the full story. Revenue numbers may hide key details about what is really going on. Understanding the nuances between real (volume) vs. value growth is key for an accurate analysis. 

2. Prices Across the Value Chain 

Prices vary whether you are finding them at the manufacturer, distributor, retail, or installation level.  

“You want to make sure you are factoring the price markups at each level,” Hurley advises. “For construction products at the distributor level, they have been marked up 30-50%, sometimes a little more. Once you get to say Lowe’s or Home Depot, it is at least a 100% markup from the manufacturing level.” 

Keeping in mind the range of prices across the value chain will help you put the data in context. For consistency, Freedonia analysts measure prices at the manufacturer level for their calculations. 

3. Where to Find Pricing Data 

You can gather pricing data from several sources including primary research, export prices, industry associations, investor presentations, SEC filings, and distributor and retailer websites. 

When you are looking at product pricing in an investor presentation, consider whether the company sells premium or lower-end products before using that information to estimate an average price. 

When looking at retailer websites, choose industry leaders and keep in mind the markups in prices from the manufacturer level. Also consider seasonality and whether retailers offer discounts at certain times of year, as with lawn and garden equipment, for example. 

4. Tracking Price Fluctuations 

Understanding why prices change is often more complex than levels of supply and demand. Remember that other factors also come into play, such as: 

• The price of raw materials 

• Labor and transportation costs 

• Brand recognition 

• Quality 

• Competition 

Knowing the factors that impact price fluctuations is important, and it is something Freedonia analysts discuss in the “pricing trends” section of industry studies. 

5. Exchange Rates and Currency Effects

If you are researching prices in a global market, you will need to keep in mind exchange rates and currency effects. For example, if you compare the average price of beef per pound in the US to the average price of beef in Turkey in the last few years, you will need to understand how the lira has weakened in value compared to the US dollar. 

6. Price Forecasting 

Price forecasting can provide you with valuable information, but it comes with inherent challenges. 

“No knows for sure what prices are going to do, of course, but we can make educated guesses based on our data,” Hurley said. Freedonia analysts use information from their economics team and primary sources for price forecasting.  

Make sure your forecasts are in line with the direction of the overall category. It is also important to think about other factors that could impact pricing that may not be present in historical data, such as a new government regulation, technological innovation, or increased competition in the market. 

Keep in mind that average prices in a forecast are not meant to reflect a specific product line from any one company. The price forecast instead encompasses a larger product mix, indicates the directional trend of value-related growth drivers, and is set at a specific point on the supply chain. 

Pricing Research from Expert Analysts

There are many factors to consider when conducting a pricing analysis, from real volume growth vs. value growth to exchange rates and currency effects. Even if you do not fully grasp all the nuances of these pricing analysis techniques and examples, or you lack the bandwidth to carry out this type of research, you can still access pricing data through the market research reports available on our website.  

Our team of expert analysts at The Freedonia Group can do the heavy lifting for you—providing reliable information on pricing trends, market sizing, and forecasts. With its relatively low investment levels, our research offers great ROI and can help you and your team make informed, analytically driven decisions. 

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About The Freedonia Group 

The Freedonia Group is a premier international business research company, providing clients with product analyses, market forecasts, industry trends, and market share information. From one-person consulting firms to global conglomerates, a range of companies rely on Freedonia for unbiased, reliable market research and analysis to help them make important business decisions. The Freedonia Group's renowned research divisions include Freedonia Industry Studies, Packaged Facts, Simba Information, Freedonia Focus Reports, and Freedonia Custom Research. 

About the blogger: Sarah Schmidt is a Managing Editor at The Freedonia Group, a premier international business research company.