5 Strategies to Help Your Business Cope With Inflation
With consumer prices and global energy costs drastically increasing, industry leaders and economists believe that inflation isn’t going away anytime soon. The consumer price index measured an 8.5% increase in the price of goods and services over the past year. However, it’s not all doom and gloom as while purchasing power is reduced, inflation does encourage spending. So how can we turn the tables on inflation while keeping our customers, investors, and everyone else happy? Below we’ve outlined 5 strategies to help your business cope with inflation.
Streamline and Automate Processes
Automation in businesses is becoming increasingly popular and it’s no wonder why. From marketing, invoicing, data reports, customer support ticketing, order fulfillment, scheduling, and more, there are a variety of repeatable and tedious tasks your business can now automate. This automation reduces the risk of errors which otherwise could have resulted in poor customer experience, loss in revenue, and poor efficiency. Automation can also improve scalability in your business as there is no limit on automated task repetition. Not to mention it saves you and your staff valuable time that could be better spent on the points below and on your business’ primary objectives.
As businesses worldwide are feeling the pinch of inflation, evaluating expenses can help to identify areas where you can save and create a cushion for any increased costs. It’s important to consider all aspects of your budget and operating costs. Check if your company is paying for products or services that you no longer use or that are no longer of importance, or even consider downsizing your office. Even revisiting material costs, with inflation it could be possible and cheaper to source the raw materials yourself or switch to an alternative. We’re not encouraging drastic expense cuts, but we are recommending you assess all of your expenses to give you a better idea now of areas you can save, as opposed to later when you could be under a lot of pressure to make those cuts.
Many companies, led by Toyota, adopted the Just In Time approach, where parts were delivered to factories as they are required, minimizing storage costs and stockpiling. However, as the pandemic hit, this resulted in huge global shortages which halted assembly lines and cost companies astronomically. These economic downturns are not always easy to predict but one way to step one step ahead is to stock up before prices from suppliers go up. Not only does this save you from paying increased costs on core materials, but it also insulates you against supply chain issues. However, it is important not to spend your cash reserves, and bear in mind, that you may need to reorganize or spend on storage space. As well as lower costs and staying ahead of the supply chain, having enough inventory will allow you to be more strategic about pricing, giving your business that competitive edge.
Review Goods and Services
When planning how to best weather inflation, businesses are often quick to increase prices, however, research shows that consumers are far more price-sensitive than quantity and quality sensitive. These sudden price increases can leave customers feeling frustrated and unhappy. Therefore, as the economic climate tightens up, reviewing your goods and services is a great place to start.
Often when items are out of stock, we blame it on supply chain issues, however, sometimes it’s the result of a calculated strategy. This strategy audits the SKUs and prioritizes those with the higher profit margins. This allows the business to contain costs, and simplify the supply chain all while meeting demand.
In addition, as consumers are more price-sensitive, rather than raise your prices, it is better to replace your prices. There are a few different ways to do this:
Offer a price per unit of consumption - Whether this is per month or per mile, offering a price per unit of consumption helps consumers feel like they are only paying for what they need or use. This can also be optimized as subscriptions. This helps consumers to feel as if they are getting more value for their money resulting in higher customer satisfaction.
Create new value propositions - Bundling existing products, introducing less-expensive alternatives, or even reducing the quantity are all great ways to move the consumer's eye level to a lower price point.
Offer a smaller quantity at a constant price - Consumers are very quick to notice a price change, but are not as aware of quantity changes. This is a strategy used by many. You would have noticed it with chocolate bars, bottles of soda, candles, you name it. Avoiding price increases, gives you the edge over your competitors.
Increase Prices Accordingly
Raising prices is not ideal, but with the pressure of keeping customers, investors, and employees happy and with materials and labor costs increasing drastically, it can help your business weather inflation. With these price increases, and tying in some of the strategies from above, it’s important to raise prices strategically and in modest increments. This pricing strategy should refer to the four C’s: customers, costs, competitors, and cash. Revisiting and investigating each C for your business will help you reach a better strategy that will keep your customers and business happy.
As this bout of inflation doesn’t seem as transitionary as it was first thought, it’s important to be prepared for anything. Of course, some industries are hit harder than others, but implementing steps and processes early on can help to cushion your business against inflation.