Although many retailers have survived recessionary and inflationary periods before, the unique conditions and extra market challenges this time around make a pricing team’s job much more difficult. In a previous post, we discussed the balanced mindset retailers need for approaching inflation. But in practice, what does that look like?
To address the issues around inflation today, retail experts from Kearney Consumer Institute, What Brands Want, LLC, and Spieckerman Retail joined us in a webinar hosted by RetailWire to discuss how retailers can leverage pricing to unlock profitable, customer-centric growth amidst the challenging economic conditions. Here are the key takeaways.
Getting pricing right is a hard enough challenge as it is, but when combined with the triple threat of inflation, supply chain issues and labor shortages, it’s difficult to know which levers are the right ones to pull to adjust pricing. It’s during these times that customers begin to place more importance on value, even if it means switching brands or shopping at multiple different retailers to find the best price on certain items. But that doesn’t mean they are willing to sacrifice quality.
“Consumers make trade-offs; they don't just trade down across the board,” said Katie Thomas, lead, Kearney Institute. “They may be purchasing certain items less frequently, trying new products and perhaps trading down, but they won’t stay with the traded-down product if the quality doesn't deliver at that lower price. That’s what I really encourage retailers to think about in a time like this. Don’t erode quality to try to hit a better price point because that won’t necessarily translate to consumer retention.”
In essence, cutting costs with lower-quality products won’t cut it. Instead, retailers should concentrate on pricing strategies that will help drive value for the consumer. One way to do this is to listen to your customers. How? By digging into your sales data. Analyzing consumer purchasing behavior will help you uncover what products matter most to them and where you need to focus on driving value for them.
Another way to fight back against inflation is to lean on private label brands. With shoppers becoming increasingly sensitive to price, retailers have an opportunity to use private labels to their advantage. But again, the key is providing value.
Since the pandemic, consumers just aren’t as brand loyal as they used to be. During the webinar, Thomas shared that in a recent survey she conducted, only 22% of respondents claimed to be brand loyal.
In addition, Michael La Kier, president of What Brands Want, LLC, shared that generally, consumers are willing to try a private label product during a shortage, but the brand can only grow if the product is satisfactory to the consumer. Otherwise, consumers won’t hesitate to switch back to a national brand at the first chance.
However, providing value isn’t just about undercutting national brands with the lowest price. A retailer could find an opportunity for their private label brand by filling a gap in their assortment or offering a unique product. If you can fill a consumer’s need and provide value, you can win their loyalty.
Yet private label growth isn’t without its challenges. You want to avoid getting caught in a price war with competing brands operating with different margins. A strong private label brand must also have a good relationship with strategic vendor partners to ensure it can continue to grow outside of inflationary periods.
In a nutshell, it’s important to be keenly aware of the private label’s own standing and perception among consumers for it to succeed.
More to read: The Rise of Private Label Brands Amid a Pandemic and Economic Uncertainty
Transparency across the store is becoming increasingly important to consumers, from sustainable sourcing to the supply chain and, of course, pricing. Customers value when stores are transparent about price changes and promotional offers. Plus, with the recent shift to online shopping, consumers can more easily compare prices right at home.
“Categories like groceries that have moved more online, maybe they were laggards in that regard, inherently that means more price transparency,” said Carol Spieckerman, president, Spieckerman Retail. “So it creates challenges for grocers, like you said, [with consumers] comparing prices because everybody’s got the same convenience options.”
A lack of transparency creates mistrust that eventually erodes loyalty. And during an inflationary period, consumers are looking more closely. “Shoppers are smart,” said La Kier. “People have full transparency, so don’t try to do one thing and then hide the fact that you’re raising the price of another product. Just be open and transparent.”
Promotions is one area to be particularly attentive to transparency. The last thing you want is for a customer to notice a discrepancy between the price on the shelf and at checkout. Consumers also lose trust in a brand when promotional offers are perceived as less of a deal than advertised.
To be transparent and maintain customers’ trust, retailers need fair and accurate pricing. Finding the balance between what consumers see as fair and what drives margins for the business can be tricky. But an AI pricing solution like Revionics can help retailers find that sweet spot of customer-centric, value-generating pricing.
We might finally be reaching the turning point for consumer purchasing habits in the face of high inflation. As consumer confidence wanes, retailers will need to have a more strategic pricing response to inflation — one that drives value and builds trust.
To learn more, you can watch the full webinar or get in touch with our team of pricing experts to discuss strategies for optimizing your pricing in today’s inflationary times.
Maisie is a content marketer and copywriter specializing in B2B SaaS, ecommerce and retail. She's constantly in pursuit of the perfect combination of words, and a good donut.