January 2022 saw the highest level of inflation in comparison to the previous year. It was just slightly higher than September 1982’s inflation rates. The inflation rate is mainly due the rapid rise in energy prices. This is due to strong economic recovery after corona, and other obstacles in the logistics chain. Other products, such as transport and clothing, have also been more expensive.
Many producers will find it more costly to produce products because energy is needed for transport and processing raw materials. These producers will likely pass the additional costs on to intermediaries, and ultimately to the consumer. Companies that sell products to customers will likely incur higher costs. This can often lead to a lower profit margin. How can you make sure your margin doesn’t drop? The right pricing strategy is key!
You cannot often pass on a cost increase to customers without it having an impact on other factors such as demand. This article will help you to find the best pricing strategies and tips for high inflation.
Practical pricing strategies
It is possible to make adjustments before you turn your pricing strategies completely upside down.
1. Price elasticity
When it comes to pricing increases, price elasticity is crucial. It is possible to raise the price of some products without seeing sales drop. But this is not true for many products. If the price goes up, many products will be less popular as people switch to other products or go to the competition. It is important to understand how your product will respond to an increase in price.
2. Reduce costs
Companies can look elsewhere before raising prices because of an increase in costs. You can achieve the same margins by lowering costs. This form of margin improvement is quite common for many companies. It is possible that you won’t be able reduce your costs further, which is a bummer, we know. You can check my editech house to gain followers on Instagram.
3. Be aware of your competitors
Companies do not have a monopoly, and are subject to competition. Customers also judge your prices based on the prices of competitors. Both in a positive and negative sense. Inflation is a time when it is important to respond to your competition in order to stand out as a company.
4. Commercial positioning
Sometimes, it is possible to increase your pricing strategy without increasing your prices. Shrinkflation, which maintains the product’s price but lowers the price to customers, is an example. Imagine a wholesaler selling 10 batteries at 10 euros each. However, inflation raises the cost of the battery pack. A wholesaler might decide to include 9 batteries in a pack, instead of 10, to make a pack of 10 batteries that sells for 10 euros. This will allow them to maintain the same profit margin. It may also be beneficial to offer fewer (or no) discounts or deals. This is something that some wholesalers include in their pricing strategy. This will ensure that your products are sold at a higher average cost than they were before.
5. Roles of products
It is important to identify the role of each product in your product range before you decide on changing their prices. Are you looking for a product with high profit margins or a key-value product? Some companies might have a pricing strategy that applies for all products. It is better to break down your assortment into product categories with different roles. This will allow you to tailor your pricing strategies.
The best pricing strategies to deal with high inflation rates
To increase your price, you can use several pricing strategies. You can use each strategy individually, or in combination to achieve a better result. To see a detailed explanation of each pricing strategy, click on the link.
Pricing model
This pricing strategy is based on competition. The goal is to be the lowest price or to offer the best value. It is useful to remember this information during times of inflation when your competition is also changing its prices. You can then continue to differentiate yourself from your competition in accordance with company goals.
Cost-plus pricing model
This pricing strategy calculates the cost of the product and adds a profit margin to determine its price. Many companies find it useful to allow the price of the product to increase with inflation. This is simple and easy to do. However, if you apply this pricing model only, your product may be less appealing to customers than the competition.
