[EN] Mastering Price Architecture: A Guide to Defining Prices Strategically with Price Indexing

In the competitive world of SMBs, having a solid price architecture is essential for standing out while maximizing revenue. Price architecture isn’t just about setting a price tag; it’s about crafting a pricing system that resonates with customers, encourages sales, and aligns with the perceived value of your products. An effective way to do this is by utilizing price indexing—a method that helps identify and refine price differences within similar product categories, ensuring that your customers see logical and consistent value in each offering.

In this post, we’ll walk you through the key steps for implementing price indexing to create a more strategic and cohesive pricing structure.

We have summarized the process into five steps:

1. Grouping Comparable Products

The first step in price indexing is to categorize products into distinct, comparable groups. These groups could represent similar product types or services, like fried chicken in a restaurant menu, or running shoes in a retail store. Organizing your products in this way allows you to better understand value differences within each category and set prices that align with customers’ expectations.

2. Ordering Products by Consumer Value

Within each group, order the products based on the value they offer to the consumer, starting with the one with least value.

For example, a fried chicken bucket with six pieces provides less value than one with twelve pieces, so it should be listed first. Similarly, a beginner running shoe would be more basic compared to a high-performance shoe for advanced runners. This ranking helps identify where each product fits within a value scale that customers intuitively understand.

3. Calculating the Price Index

Once products are ordered by value, calculate each product’s price index by dividing its price by the price of the lowest-value product in that group. This gives you a relative measure of pricing within the category, allowing you to quickly see any price gaps that might appear inconsistent to customers. Besides, dividing the prices over only the first product helps to compare easier between all the products in the group.

In this example, we are analyzing the prices of different fried chicken products offered from a fast food restaurant. The products are in ascending order and the index is already calculated:

4. Standardizing with Unit of Measure Price Indexing

The first Price Index that we calculated helps you to see the full price differences the products have and how the customer looks at it at first. But then the customer is going to analyze and try to calculate the value each product is giving them, and to do that it’s better to see a Price Index calculated with the unit of measure of the products.

It’s really easy to apply this for products that have a common measuring unit, like the pieces in the fried chicken, liters in a beverage, grams in a snack, and so, but in products like running shoes, clothing and such, it’s more difficult but not impossible. The trick is to create a measure, for example in the running shoes, you should yourself “how much more valuable is this product than the cheapest one”, it might not be perfect but it’s a good first measure that you can later adjust according to the sales the product is achieving.

In the case of our example with the fried chicken, you’ll see that now we are seeing “discounts” on the price per pieces:

5. Analyzing and Refining Your Price Index

Finally, analyze whether each product’s price index aligns with its market value and customer expectations. Ask if the current structure makes sense—do high-value products justify their premium? This is where your pricing strategy truly takes shape, as you balance perceived value with profitability.

In our real life example with the fried chicken, many would think first to lower the 15 pieces' price, but it's not the best solution. The business understood that it should rise the price of the second product (Boneless 12 pieces) to maximize the income and have prices that make sense. I'm a customer of this restaurant, and I always bought the 12 pieces because the 15 didn't make sense to me, not that it was expensive, it just wasn't right to spend more per piece if you offered a lower price in the 12 pieces.

Creating a robust price architecture through price indexing can transform the way customers perceive your brand and products. At datalemons, we’ve automated much of this analysis to save you time and simplify the process. Once you’ve set up your product groups, our platform handles the indexing, unit pricing, and visualization for you, helping you spot and address pricing inconsistencies with ease.

With the right tools, making data-driven pricing decisions becomes an intuitive part of your business strategy, allowing you to confidently take the next step.