Why You Should (Almost) Never Look at Non-Promoted Price

Price AnalysisOne of the key steps in an IRI/Nielsen pricing analysis is drilling down to look at regular price vs. sale price. Syndicated databases are chock full of price measures and, even for regular price, you still have a choice to make. There are two proxies for regular price: Non-Promoted Price and Base Price.  In this post, I’ll attempt to convince you that you should (almost) never use Non-Promoted Price.

If trade promotion isn’t present for your product or you’re analyzing a retailer with an everyday low price (EDLP) strategy, you don’t really need to worry about any of this.  There won’t be a difference between regular price and sales price.  You can just stick with average price.

Syndicated databases are chock full of price measures and, even for regular price, you still have a choice to make. There are two proxies for regular price: Non-Promoted Price and Base Price.  In this post, I’ll attempt to convince you that you should almost never use Non-Promoted Price.

First, let me say that I understand why you want to use Non-Promoted Price.  It seems clearer, more intuitive.  It’s simply an average of prices paid in stores without promotion during that reporting period.  Why wouldn’t that be a great measure of regular price?

And Base Price?  That’s an estimated value, generated by IRI/Nielsen methodology.  And you may ask yourself “If they are estimating that price, how do I know that it’s right?  Plus it’s harder to explain. So why should I use it when I can use this perfectly straightforward Non-Promoted Price instead?”

Here’s why Base Price is almost always the better choice: it incorporates data from all stores, not just the stores that are promoting.  IRI/Nielsen will have a Base Price estimate, based on the past, even for stores which are running a promotion.  By contrast, and by definition, Non-Promoted Price only includes the stores that aren’t promoting.  So Non-Promoted price will only be coming from a subset of stores.  If regular price varies across stores, then regular price from the stores that aren’t promoting won’t necessarily be a good estimate of regular price in the stores that are promoting

You can see how this works in the example below.

A quick note on measure names: Non-Promoted Price may be called No Promo Price or No Merch Price in your pick list of facts.

We have a hypothetical market made up of two retailers.  In Week 1, there is no promotion at either retailer.  Retailer B has a higher regular price than Retailer A.  The Non-Promoted Price and the Base Price for the market are the same: $2.69.

Non Promoted Price Example 1

In Week 2, Retailer A runs a promotion in every store.  There are no non-promoted price observations for Retailer A.  Therefore, the Non-Promoted Price for the market comes only from Retailer B.  It looks like the market’s Non-Promoted Price has increased from Week 1 ($2.69) to Week 2 ($2.99).  But regular price hasn’t changed.  Base Price, however, is stable across the two weeks because IRI/Nielsen incorporate past weeks’ non-promoted price observations for Retailer A into their Base Price calculation.

 

Non Promoted Price Example 2

If you are looking at data for an individual retailer, there probably isn’t huge difference between Non-Promoted Price and Base Price because most retailers have consistent promotional timing across stores. But even at the account level, you can see how Non-Promoted Price could mislead.  Base Price is the better default choice.

My one exception to the “never use Non-Promoted Price” rule? When you change your regular price. Regular price changes are incorporated quickly into your Non-Promoted Price measure, while it takes a few weeks for Base Price to reflect the change. In this scenario, you can use Non-Promoted Price to see if/when your new price is reflected at retail.

Did I convince you? Or do you still swear by Non-Promoted price? Had problems with Base Price? Leave a comment below to share your experiences.

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Comments

  1. Praneet aneja says:

    Thanks, this is quite insightful. Can you help me understand if base price is not present, would average price be better than non promo price to set pricing strategies? I would traditionally prefer to use non promo in such cases.

    • Sally Martin says:

      If base price is not available, which is often the case in countries outside the US/Canada, then non-promoted price is a better proxy than average price. If you examining data for a single retailer, then non-promoted price should work well. If you are combining across retailers, be aware that some retailers will have more non-promoted weeks than others and that can influence the average non-promoted price. But even with higher levels of market aggregation, non-promoted price would still be preferred over average price when looking at everyday pricing strategy.

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