Skip to main content

Yes, Price Decreases Are Possible During Inflation

When put to the inflationary test, Revionics’ price recommendations are leading to “trifecta growth” for clients

Inflation is a recurring theme in our pricing conversations today because we’re seeing the highest U.S. inflation rate in more than a decade. In June 2021, according to the U.S. Department of Labor Statistics and the Consumer Price Index, we reached an inflation rate of 5.4%, a figure last observed in August 2008. It’s possible that a good number of merchants today weren’t in their roles 13 years ago when we last saw inflation this high, making it new territory for many.

Even though retail has seen this level of inflation, it’s more challenging this time around. We’re operating in a fast-moving market with constantly evolving technology, ongoing customer demand shifts, incredibly low customer loyalty, and increasing omnichannel pressures, to name just a few.

This may sound obvious, but inflation is fundamentally a pricing challenge. The retail world gets hit with a lot of different factors and problems that may have a variety of answers. But when it comes to inflation, pricing is the key area of focus for finding a solution.

With two decades of helping retailers in a variety of industries all around the world, we’ve seen it all at Revionics. Meaning we’ve helped retailers manage inflationary periods before. Mitigating cost increases is actually one of the primary reasons we exist as a company, and it’s one area where our technology really shines.

Which is why we feel confident making such a bold claim that pricing decreases are possible in times of inflation – because we see it with our clients every day. It sounds counterintuitive, but counterintuitive is exactly what retailers need right now. The old way of pricing just isn’t going to cut it in a new retail world. Let’s take a quick look at why.

Why traditional pricing methods aren’t optimal during inflation

In a previous article, my colleague Matt explore several pricing mistakes we recommend you avoid during periods of inflation. Bookmark it now for a deeper dive once you’re finished with this one, but here’s a quick rundown:

  • A sole focus on profit or margin maintenance doesn’t consider other factors that may impact sales.
  • Matching the pricing moves of a competitor isn’t a well-informed tactic either, especially if you’re not seeing the whole picture. It’s important to understand which retailers are actually competitive with your customer base.
  • Making choices based on gut instincts or what “worked” historically may end up working in your favor, but that’s rare.
  • Merchants often do not have an enterprise view or approach, which can lead to them making decisions that may be good for their category, but poor for the overall business.

To sum it up, merchant-led pricing tactics will almost certainly not result in the desired outcomes.

So, what should be driving your pricing tactics? Analytics and AI.

A strategic and analytical approach to inflationary pricing pays off

In June and July 2021, when inflation was at that 5.4% peak in the U.S., we can see that almost 40% of all of our U.S. customers’ pricing actions were decreases. Yes, really. When most retailers were taking pricing increases in tandem with their cost increases, Revionics clients were moving in the opposite direction.

At the same time, U.S. retailers using Revionics increased profits by 5.7%, increased revenue by 0.5%, and improved their competitive price index by 3.1%. And the numbers for our European and Latin American customers look even better.

This “trifecta growth” is hard enough to achieve in regular market conditions, let alone the challenges retailers are currently facing. Getting there takes a strategic, balanced approach guided by analytics and data science to find a win-win for both retailers and customers.

During this current period of inflation, we’ve been helping our retailers find that balance through identifying their key items, better understanding the competitive landscape, and getting their zone and channel structures in a good place.

Supported by analytics and intelligent pricing recommendations, our customers are able to react faster, make more confident pricing decisions, and achieve profitable results, despite the current market conditions.

With the added efficiency and ability to handle complexity that an AI solution provides, one supermarket customer is able to take different pricing approaches optimized for the specific needs of their different banners. Where the company wants to take a strong competitive stance, our pricing strategists are helping to model out specific zones and identify opportunities to capture additional profit. With other banners, the retailer can make smaller price adjustments, monitoring the cost change models and impact overtime.

Several of our other customers are leaning more heavily into the Revionics What If scenario simulations and forecast modeling. Knowledge and experience can only carry a retailer so far when market conditions are completely new. From measuring the effect on competitive positioning, to finding the quickest way to take cost increases with the smallest demand impact, the models provide retailers with predictions they can trust.

Turn to us for your playbook on inflationary pricing

With inflation, the decision is not whether or not to act. Inaction isn’t an option here. Inflation forces pricing decisions, whether you are prepared for them or not. Retailers that made inflationary pricing moves this summer without the benefit of AI insights are seeing massive deterioration in both unit and revenue. And this is true across all regions and retail verticals.

Inflation is hard to overcome on your own, but you don’t have to navigate it alone. Reach out to our team today to learn how Revionics can help you find a profitable path through inflation.

About the Author

Juan Jose (JJ) Thorne is the Sr. Director Customer Success, Americas & APAC at Revionics. He is an accomplished Strategy, Analytics and Pricing consultant with over 15 years of experience achieving revenue, profit, and market growth objectives for multi-channel retail companies. He consults with clients to transform data into actionable, strategic insights. JJ is a trusted advisor and played an integral role in growing the Americas region. JJ earned his Bachelors of Science degree in Industrial Engineering at University of Lima in Peru and holds a Master’s in Business Administration from Vanderbilt University in Nashville, TN.