We’re more than a month into 2022 and still facing high inflation rates. While pent-up shopping demand and a desire for a “normal” holiday season continued to fuel spending through last year, it’s too much to hope those drivers will carry us through another year. If you are looking for ways to strengthen your inflation pricing response, here are seven pricing strategy factors to reevaluate.
By now, adjusting to changes in consumer behavior should feel familiar. But as inflation continues to drive up grocery bills, oil prices, furniture costs, and more around the world, it’s going to cause additional consumer behavior changes in the months to come.
Understanding how inflation is impacting your customers’ spending, basket value, brand preferences, channel preferences, and other behaviors will help you fine-tune your customer strategy and bring more value to them.
Armed with information about customers’ new shopping patterns, you can fill in any product gaps where you may not be meeting their needs, optimize assortments to simplify choices, and assist their shopping journey to make it easier to discover new products or find cheaper brand alternatives.
And as consumer behaviors have changed so much, it makes sense that their most essential items have probably changed as well, especially now, as consumers are switching brands or cutting back on supplementary purchases to save money.
It’s time to reassess your Key Value Items (KVIs) to ensure you are remaining strategic around the products your customers care about most. With an understanding of your updated KVIs, you can make better pricing decisions to better serve your customers and protect your price perception.
Today’s retail landscape is hypercompetitive. Now that you know your current KVIs, you know where it is most important to be competitively priced. But you also need to have a full picture of your competitive pricing landscape.
New shopping behaviors, low brand loyalty, and increased online shopping may have shifted whom you are competing against. You may need to reevaluate your most important competitors and make adjustments to your strategic competitive pricing approach.
Analytics is important for understanding how your top competitors are moving during this inflationary period. Insight into who is taking price changes first, which competitors are moving to match or beat which other competitors, and how they are changing prices differently online versus in-store can help you know when and how to act against them.
Omnichannel is a hot topic in retail right now, and part of that omnichannel shopping experience is your channel pricing structure. For a while, COVID-19 pushed many people from shopping in-store to online. Now, we’re starting to see consumers opting for a more hybrid form of shopping.
This means your channel pricing needs to present a consistent (notice I didn’t say identical!) perception across the board. Prices should be optimized by channel to suit consumer behaviors, but should also all build toward a cohesive channel strategy and pricing image.
Consumers are looking for ways to save. This is your opportunity to get your private label brands into their carts and hearts.
While private label growth received a boost from the pandemic, all signs show it’s a trend that is here to stay – if the level of investment from many major retailers is any indication. Recent data from Catalina’s Buyer Intelligence Database shows that new product launches for private label brands overtook national brand introductions in the United States in 2021.
Winning a consumer’s purchasing dollars and brand loyalty to your private labels will take a strategic and consistent brand gap architecture, as well as pricing and promotions that help guide their shopping journey toward your owned brands.
The gut reaction to a cost increase is typically a price increase. And while that may not have been so problematic before, the answer to widespread cost increases can’t just be to take prices up, especially as consumers are noticing the strain on their wallets.
A stronger inflation pricing response requires a mindset shift and a bigger-picture view. Retailers need to take a balanced approach of both price increases and decreases. Demand analytics can help you identify which products can stand an increase without a major negative impact on demand so that you can decrease or maintain competitive pricing on your KVIs. This way, you are protecting both margins and price perception.
If you want to further explore how to find a balanced approach to pricing during inflation, this article goes more in depth on the subject.
Another thing to consider when finding a balance is how inflation is affecting your different consumer groups. A recent article from Grocery Gazette explores how some of the largest grocery price increases in the U.K. have hit some of the cheapest items, thus disproportionately affecting lower-income households – those likely already feeling the effects of inflation the hardest.
Data analysis on the different purchasing behaviors of your consumer groups, along with an analytics-driven zone pricing strategy, can help you make impartial pricing decisions based on consumer signals and avoid inadvertently impacting any one group more than another.
Let’s make 2022 the year retailers stop running ineffective promotions. Inflation is your chance to break old habits and start fresh with a truly efficient and effective promotional strategy.
As prices rise, a common response is to increase the number of promotional offers as well. Yet this complicates the shopper experience and may create a dependence on promotions. Long term, it can have poor consequences for your price perception.
Instead, stick to fewer or more impactful promotions. A Promotional Performance Analysis can help you identify promotions that drive the most value for both you and your customers.
And with supply chain shortages, you need to be strategic about how your promotions impact inventory levels. Be careful with promotions that drive additional unit sales without added basket value. You can also leverage promotions to shift demand from lower-inventory products to alternative, higher-inventory options.
As a bonus, running fewer promotions overall also reduces the strain on an already limited labor capacity.
Reassessing all these factors will not only help you respond stronger and more strategically to today’s current inflation challenge, but also prepare you to take on future retail challenges and shifts. But robust data analytics and an AI-driven pricing solution are key elements of making the right adjustments and decisions.
If you are missing that data and AI piece, or just need more guidance combating inflation in general, reach out to our team. We’re helping retailers around the world balance their approach to inflation and produce stronger results.
Matthew specializes in Pricing & Retail Strategy, Corporate Strategy & Customer Focused Solutions. Matt is a leader in Pricing Strategy Development, Business Strategy Development & overall Corporate Strategy. Matt has a strong merchant background and experience with C-Level presentations. He has 20+ years of experience in Retail encompassing Consulting, Buying, Pricing, and Marketing across a variety of retail verticals, industries, and regions. Having lived and worked in France, Germany, Hungary and South Africa (with additional long-term engagements in other markets), Matt spent the last decade driving customer-focused success at Revionics.