As a retailer, dealing with inflation is a balancing act – raising prices too much could result in the loss of important customers, but not increasing them could negatively affect your bottom line.
In this article, we provide you with the best inflation pricing strategies to ensure your business finds the perfect balance between cost and profitability. With our expert advice, you will have the tools that your business needs to remain competitive and profitable in the ever-changing economic climate.
Inflation trends in 2022 and beyond
Inflation made a huge resurgence in 2022, causing Canadian shoppers to experience prices they hadn’t seen in decades. As 2023 approaches and the global economy continues to recover from the economic impact of the pandemic, consumers are feeling the burden of having their budgets stretched thin and understandably worried about what the future may hold.
The Consumer Price Index (CPI) is the Bank of Canada’s preferred indicator of Canadian inflation. The CPI is a measure of how the cost of goods and services change over time. CPI data released in October 2022 by Statistics Canada showed a 6.9% rise in prices over the previous 12 months. Earlier in the year, the CPI had risen to 8.1%, the largest yearly change since January 1983.
Businesses, just like consumers, are feeling the pressure of inflation. According to a report from the Canadian Federation of Independent Business, nearly 8 out of 10 small business owners reported increasing their prices more than they would have in a typical year. Retail sales decreased by 2.5% in July 2022, exceeding the predicted 2% decrease.
Despite some claiming that inflation has reached its peak, the outlook for the future calls for caution. The consensus is that the economy is likely to slow down in 2023 and even into 2024. This highlights the importance of having an effective inflation pricing strategy to offset this potential economic downtrend.
The 5 best retail pricing strategies during high inflation
Here are some effective strategies to consider during periods of inflation.
Revaluate your budget to absorb costs
There are ways to keep your profit margin intact without simply passing price increases along to the customer. Absorbing costs and adjusting your budget as a consequence may be an option to help battle inflation, rather than solely relying on price increases.
Revisit your budget and identify areas where costs can be reduced temporarily to avoid increasing prices too high, which will help counter the decrease in consumer buying power.
Consider consumer demand and price elasticity
Gaining insight into your company’s position within the market is key. Factors such as consumer demand can have a large impact on pricing strategies.
If your goods or services are in high demand, it is more likely that increasing prices will be successful. In these cases, products have a strong price elasticity, which allows prices to be raised without impacting sales. However, this is not always true.
Your pricing strategy should also take seasonal demand into consideration. During times of year when consumers are financially constrained, raising prices may lead to more consumer resistance.
Adopt digital technologies for long-term resiliency
n the other side of the coin, you may want to consider investing in technology to become more resilient to inflation in the long run. In the short-term, it may therefore be necessary to rely on price increases for this strategy.
As pointed out in a May 2022 Forbes article, retailers are leveraging technology to better reach and engage customers in novel ways during inflation. The logic here is partly due to the realities of deflationary technology, the idea that the cost of technology decreases in proportion to its usage.
One such technology that retailers are adopting is smart shelving. Smart shelves feature electronic shelf label technology, which provides consumers with real-time access to price comparisons and available promotions, which are advantageous in times of inflation.
Monitor your competitors’ pricing
Competitive pricing helps ensure that you always offer the best value for your customers. Monitoring your competitors’ pricing strategies will help inform your own decision-making process.
Knowing when competitors are likely to increase or lower their prices can be beneficial when setting your own prices. When inflation is high and competitors are changing their prices, you should be keeping an eye on their pricing strategies and making informed adjustments.
Implement a dynamic pricing model
A dynamic pricing model can be a great choice for companies during times of inflation. This model can help businesses maintain their profitability by automatically adjusting prices according to changes in different factors, such as supply chain costs and, as outlined above, market demand and competition.
Tips for making price adjustments during inflation
Here are some tips to simplify making price changes during times of inflation:
- Monitor the inflation rate: Review the inflation rate regularly and make sure you are aware of any changes that may affect the cost of goods and services.
- Set pricing thresholds: Define thresholds for when prices should be adjusted to counteract the effects of inflation.
- Consider the impact of price changes: Consider the potential impact of price changes on current and potential customers.
- Communicate pricing changes: Let customers know about any pricing changes and explain why the changes are necessary.
- Use discounts or promotions: Offer discounts or promotions to offset the effects of inflation on prices. Share promotions with customers on social media and in-store using digital signage or point-of-purchase displays.
JRTech Solutions can help you become resilient during inflation
Retailers can face tough challenges when inflation rates are high, due to increased production costs and reduced consumer spending. For continued profitability, it’s always a good idea to revaluate and optimize your pricing strategies.
JRTech’s electronic shelf labels (ESLs) provide an optimal solution for retailers to become more resilient in the face of inflation. Automating pricing with ESLs not only eliminates the need for manual price changes, but also provides valuable product data to your employees and consumers.
Contact us now to learn more about our products and start optimizing your pricing strategy today.