Inflation is a big concern for everyone from individuals, companies, retailers, to politicians. This affects you as an individual and also your business life. To deal with that effectively as an online retailer, you need to adjust prices for inflation. But you may need to adopt some strategies while doing that.
In this blog post we will go over all around inflation pricing strategies. Let’s take a look at some pricing strategies you can adopt.
How Does Inflation Affect Businesses?
The global economy is experiencing inflation and is keeping the rise with the increase of goods and services prices over time. From an individual perspective, there is a consequence of inflation like higher cost of living. But small businesses might be the ones affected the most.
71% of small businesses reported at least 20% or more increase in costs for supplies and services.
They have to make the right strategic decision especially in the time of inflation. The ones evaluated the risks such as in the supply chain might be the ones who get the benefit the most. This is because supply chain problems continue to raise costs and over into higher sticker prices.
32% of small business owners are afraid supply chain shortage will hurt the health of their business.
This is an opportunity to increase prices and correct underpriced items.
The truly effective pricing strategy in inflationary periods should see this as an opportunity. This is a way to raise your prices and correct underpriced items. Having the right pricing strategy in this period, the market will help you.
Remember that consumers are less-price sensitive when it comes to specialized, exclusive items. You may have more freedom to increase prices with those specialized items but set the increase accordingly. So, don’t give all products the same increase.
Don’t Get Angry Customers
If you increase prices too much at once, you might get your customers angry. When they get angry they will start to look for other alternatives. YES, your competitors!
Monitor The Market
Market research can be useful. See the pricing moves of your competitors. Fast response can be essential in the Ecommerce world. This is because you have lots of competitors!
According to a recent industry report, Ecommerce will account for 20.4% of global retail sales by the end of 2022, up from only 10% five years ago.
Having competitive analytics in place helps you save margins in inflationary periods. Advanced analytical pricing solutions can monitor demand trends, price elasticity, basket comparison, competitors’ prices and many more.
In today’s world of Ecommerce, consumers are willing to check other options after seeing high price tags. So, it is highly important to know other prices in the market. You can track your competitors’ prices and know where you position in the market.
Make A Key Value Item Analysis
There are two categories for the purchasing items: frequently and infrequently bought items. KVI(Key Value Items) are the frequently bought items. They are the products with high price elasticity and are sold pretty often. These are high selling products and the most important items for buyers. Identify KVI for your shoppers and then lower the prices of them. Doing so will help you understand that you should not raise prices of those items unless you can not balance it anywhere in your business. You can identify KVI by using AI technology and algorithms.
Find KVI for your customers and reprice them competitively. You might think that you will not get extra profit. But, when you lower the prices you can have extra sales!
For example, in supermarkets, cheese might be KVI. It is sold very often and the price tag is very similar in most of the supermarkets. If the consumers see a lower price they probably go to that supermarket. When they decrease the price of cheese, customers are willing to come more often to that store. Then, they can raise the price of milk or another item and buyers are willing to buy it because they have bought the cheese at the lowest price possible. So in that way, they will have a better margin on this product.
Benefits of Identifying Key Value Items
- You will have a higher profit overall.
- Better consumer perception of your brand compared to competitors.
- Higher margins and sales on key value items.
Key Value Items is a good and effective pricing model. Sellers could benefit from it. This is a Win-Win scenario for both buyer and seller, especially in inflationary periods.
Intelligently Communicate Price Increase
Consumers are willing to accept price increases when they are informed with the rationale reasons. Research has shown that the significance of communication between buyer and seller creates a solid relationship.
There are different ways to do it;
- Be Transparent
Explain the reason why you are increasing prices; You do it to maintain product quality and/or increase in material cost. You can email your customers about the price change. Being transparent in this period makes your brand and your communication trustworthy.
Example of Small Business Being Honest About the Price Increase
One of the American underwear designer brands Knickey has started to deal with high material costs. They are offering to use only organic cotton for their products. In the past year, the price of their fabrics has increased over 100%. They have decided to inform their customers while maintaining both the quality of the products and both their standards.
In an email titled “Important Announcement,” they shared the story: “In order to continue providing the best Fair Trade, certified organic cotton undies out there, we need to make a small adjustment to the price of our undies.” They cited the higher costs of their cotton and transportation across the supply chain. They have observed a good reaction and feedback from the customers. - Don’t Blame Inflation, Offer New Content
You can add new content to your products, something new that will excite your customers. Or that could also be something you had but you haven’t been telling your customers. It basically features about your product that you haven’t been promoted yet. You can increase the value you offer.
Don’t blame the inflation for the higher prices. By informing your clients about the repricing of the products with the new features you can also get the attention of new and existing clients to your business.
Don’t apologize for higher prices, be polite and describe the conditions. Higher prices are good for you; your team and the company. Try to see the benefit behind it.
Most of the companies expect a backlash effect from the customers but when you do it in the right ways such as informing them transparently, you will get the benefits most.
Tips on Sending Your Message
Be transparent and clear about your message. This will increase customer trust.
Inform them before the price increase. Notify them directly via SMS in which they can see right away.
Offer a new content or a feature you already had but haven’t shown to your customers.
Focus on the value you offer. Highlight the product quality.
Don’t apologize, be polite and explain the situation in an appreciated way.
Establish a Positive Brand Image
At some point you have to raise prices, it’s unavoidable in the market conditions. Doing it so should not make you have lower margins, you can also have higher profits and sales. Strong brand image can reduce the negative impact of inflation and high prices.
When you have a strong brand image you will see that consumers are willing to pay more for your branded products. Maintaining a positive brand image might be more important than you think from a customer’s perspective.
To create a positive brand image you first need to identify the goal of your business as the brand identity. What you stand for, beliefs and values you emphasize as a brand is your brand identity. Once the goals and objectives are defined you can create a strong brand image.
Brand image is how your customers perceive the brand. Here, the company has less control over the image.
Let’s take a look at some actions you can take to have a strong brand image.
Define Customers Perception of Value
Consumers perceived value includes convenience, pricing and reputation. They are looking for the product or service if it meets their wants and needs. You can determine the high perceived value of goods by observing what consumers value the most.
Quick Tip: You can do it by collecting data, doing trials and surveys.
Offer Multichannel Customer Support
Providing good customer service is essential to customers. You should respond to all their needs effectively and fastly. After an informative and helpful communication with the customer service, they will have a positive perception for the brand. You can offer a support team via live chats. Then, you will be able to offer 7/24 support and it is a great way to do it.
Examples of Brand Image
Walmart: Known for retailer brands selling goods for lower prices compared to other retailers.
Coca-Cola: Known for a product used at a time of happiness, joy and good experience. States that are original cola, unique taste.
Concluding Remarks
Don’t be afraid to increase your prices. Most business owners have to do it to meet their costs. Adopting strategies and tips mentioned above the article might be a good idea for your business.
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