Inflation is a major pressure felt around the world in all retail sectors from food to electricity to fuel. In South Africa, we experience consumer inflation at around 5,9% per year and this is steadily increasing. So what does this mean for retailers and what is the best way to maintain realistic pricing during such unpredictable times? Here are 6 ways.
1. Address hypersensitivity to pricing directly
You know there is price sensitivity when just the slightest price increase causes customers to switch to competitors. A skittish customer reeks of fear and may mean that something feels unpredictable or threatening to the customer. This makes customer communication vital to clearing up any misconceptions and settling anxieties around what else may or may not change. With this in mind, retailers need to open the dialogue, be frank with their customers and explain the increase directly. This provides a transparent and containing element to the customer relationship which may bolster loyalty.
2. Build marketing programs to offer relief
At the end of the day, customers want value. So if you need to increase your prices, then soften the edge by considering promotional tactics that will help your customer feel appreciated. This could take the form of coupons, value adds or bulk discounts. Just remember to start these campaigns digitally so you can accurately test your strategy and measure engagement before rolling it out in your physical retail environment.
3. Focus on the ‘trade up’ and ‘trade down’ customer
During challenging economic times, store brands and premier lines always do better. This is because customers will instinctively start to search for better prices from store brands for certain categories, but will still be comfortable with spending more on others. The important thing here is to price each of your sectors in a way that will take this into consideration and continue to entice value.
3. Bigger baskets, fewer trips
As we saw during the pandemic, customers are still choosing to visit stores less frequently and are shopping online a lot more. But now they aren't so concerned about the virus and are rather worried about increasing fuel prices. So customers may prefer to shop from home or work. This means that retailers need to find considered ways to retain profitable customers by enticing them to fill up their baskets more in their weekly shops.
4. Assess the competition
This extends beyond other retailers or similar operators but also looks at hybrid retailers. Retailers are diversifying by offering more than one aspect of their shopping experience. You may also need to decide if you need to hybridise your model as well. Customers enjoy having multiple needs met in one setting so for example, a supermarket could consider offering meal selections and a kitchen to fulfil this demand.
5. Pricing must consider the overall value
If you consider that price increases can reduce demand, then retailers must pay close attention to each product in each vertical and ensure they are continuously offering their customers real value. The overall consideration here is not about price, but addressing the question of how to give your customer value and product rolled into one.
The bottom line
The war in Ukraine, increasing fuel prices and Covid-19 are not going away anytime soon. Making it essential that retailers think very carefully about how to address their retail pricing during uncertain economic periods. The last thing you want to do is alienate your most loyal customers, so consider the situation from various angles and take a multi-pronged approach to your pricing models. Should your pricing strategy require investment, consider a cash advance from Merchant Capital, today.