From initial fears of a prolonged economic slump due to Covid-19, the global economy has seen a resurgence led by unprecedented demand. To experience such strong activity following months of lock-down where key industries cut back on activity to reduce costs, a backlog has been created such that global supply chains may take years to catch-up. Coupled with skill shortages across all industries, the past 12 months have seen inflationary pressures reach a new high for the 21st century.
Faced with increasing input costs, businesses have had little choice but to pass these costs on to consumers. Price increases are however an uncomfortable conversation in all business settings. How much of this cost can the business assume? How will consumers react? What are our competitors doing? These are just some of the questions to cause a headache. Moreover, with the power of social media, consumers can have more of a say on price surges than ever before. Hence, the reaction of consumers and the impact on business reputation can have long term consequences if changes are not communicated clearly.
Considering the consumer reaction to price rises, businesses must evaluate how the long-term impact on customer relationships will be managed. With the increased emphasis on environmental, ethical, and social factors impacting a consumer’s decision-making process, society values transparency and businesses that maintain a strong dialogue with the community in which they operate. An open dialogue explaining the reason why prices are increasing will more likely assist with a consumer associating themselves strongly with the business and made to feel an integral part of its success. In a volatile market, poor communication poses the greatest risk to a customer switching to a competitor. Not having the opportunity to consider or discuss upcoming changes can create a shock to consumers which can harm the relationship.
Disruption historically leads to innovation. Inflationary pressures encourage consumers to seek alternative solutions. Businesses must either provide these alternatives or risk consumers going elsewhere. Hence, although the current environment is challenging, investment in technology and new skills are more crucial than ever.
Businesses that can innovate and increase the value proposition are in turn more likely to establish a customer base that will not get deterred by the price, and instead focus on the value being delivered. Value-based pricing could enable businesses to shift the focus from inflation to future growth.