Inflation affects all industries globally. What common tactics can help businesses adapt?
In this post, we cover the four product and pricing actions businesses can take to capture opportunities during periods of high inflation.
Evaluate your product mix
The current pandemic and inflation have seen some manufacturers and retailers of non-essential goods face a significant drop in demand 1 . As there are uncertainties about whether demand could recover to previous levels, brands are forced to seek new ways to reach and engage more customers to sustain their businesses.
Some brands started to change their product mix to suit the demand arising from the pandemic. For instance, apparel manufacturers manufacturing face masks, IT retailers putting thermometers and sanitisers on shelves during the crisis. While these immediate and short-term changes can help firms survive in the current market, businesses also need to anticipate the landscape in the long term.
During times of high inflation, it is useful to examine profitability by each SKU or service because:
- It allows brands to minimise cost by eliminating low performing products and focussing on higher-performing products.
- It helps identify products with inelastic demand or segments with low price sensitivity for price mark up without sacrificing volume.
In this disguised example, after removing two of its SKUs, the consumer goods producer increased its revenue and retained market share.
Pricing, feature and claim selection in markets where product characteristics vary across brands, SKUs, or price tiers.
Innovate and premiumise
Innovation allows businesses to launch premium offerings that deliver greater value to customers, and thereby avoid negativity associated with simple price increases on existing products.
In these cases, businesses may want to seek cannibalisation of their existing products by the premium NPDs. Conjoint analysis simulations can help validate if the NPDs in your pipeline help achieve this goal:
Intelligently communicate price increases
If you have to do a simple price increase, keep three things in mind when communicating price increases:
- Customers are more willing to accept temporary surcharges than permanent hikes 3.
- Customers are more willing to accept price increase when they are informed about the rationale behind the price change 4.
- Especially in times of inflation, consumers may have different needs and pain points 2. A single message may not be enough to appease all.
Establishing a positive brand image
There is no denial of the significance of branding, and there is no better opportunity for brands to show their genuine and integrity than a humanitarian and economic crisis like the current pandemic induced inflation 14 .
Brands often neglect the influence of pricing in attracting customers 15 and how good pricing strategies can build good relationships with customers while generating desirable profits 16 . Communicate to the customers that your brand stands by the customers and defends them during their most challenging times17 .
On the other hand, your customers may not be ready to accept a price increase, even when your brand faces increased costs and needs to raise prices. Show empathy and explain how much value your products offer compared to the next-best alternatives. Research has shown communication efforts and strategies contribute to building a solid relationship with customers 18 .
Taking the time to build a positive brand image allows businesses to improve their brand loyalty among their customers. Improved brand loyalty results in higher brand power. Stronger branding can reduce the negative impacts of inflation on businesses as consumers are willing to pay more for branded goods.
Test pricing of new and existing consumer goods in a competitive context using elasticity charts, revenue, and profitability projections.
What market research is needed to perform these business actions?
With various potential courses of action for your business, and official statistics being less relevant to individual industries, market research can play a useful role. Next, we explore how and what research to do during inflation.
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