How to identify the optimal price in the face of rising inflation

How to identify the optimal price in the face of rising inflation

04/21/2022 - Price optimization

During the last few quarters, the upward trend in inflation has continued, with consequent increases in costs throughout the supply chain: raw materials, transport etc. How do you control the impact of inflation on prices without damaging your brand? Here are some keys to setting an inflation-aligned pricing strategy that will allow you to continue to win sales that are a good fit for your customers’ wallets.

Firstly, what is happening with price inflation?

Since the arrival of the COVID-19 pandemic, we have witnessed continuous waves of changes brought about by the continued lockdowns and the shutdown of industry in several regions. All this has led to full-blown collapses in raw material transport, resource procurement, such as wood, and even a shortage of parts for product manufacturing. These issues have been coupled with the increase in the cost of energy.

The automotive sector, industry and even construction have all been affected by this situation. According to Eurostat data, the rise in production costs has accompanied inflation, which has increased by more than 5 points on average throughout Europe, as of January 2022. While rising consumption seemed to have eased indiscriminate increases, the conflict in Ukraine has again triggered uncertainty and instability in markets.

What products are affected by inflation?

In general, the prices of final consumer products are most affected by inflation. They carry the weight of the entire production chain moving behind them.

In particular, we are talking about 3 product categories:

  1. Commodities and Consumer Staples: these are products manufactured for continuous use, directly affecting consumers’ wallets.
  2. Durable Consumer Goods: these products are necessary for everyday consumers but have increased durability. Household appliances, consumer electronics and vehicles are the most significant players.
  3. Real Estate: prices have continued to rise following increased demand for larger, better-equipped housing and the lack of raw materials for new construction.
3 keys to setting your prices despite inflation

3 keys to setting your prices despite inflation

This new market reality can negatively affect your business if you focus on price increases based on cost. What can you do to adapt your prices to inflation without losing sales?

  1. Monitor and evaluate your competitors’ pricing strategy. A monitoring tool lets you know what fluctuations are occurring in the market. Collecting details of changes will help you understand the possibilities available.
  2. Implement a dynamic pricing strategy. Using data on the market, competition, demand, and other variables affecting your products, you can define a dynamic pricing strategy that ensures you can maintain your profit margins while adapting prices to each and every situation. Having prices that go along with peaks and troughs in demand is key to finding the optimal price.
  3. Optimise your promotion strategy. Fight against the negative perception of price increases by offering more for more: product bundles, cross-selling, upselling. Despite inflation, these measures give the customer the perception that they are getting more for their money.

One way to ensure your pricing strategies are successful is to use a price strategy simulator like Reactev’s. By customising your parameters, you can scientifically predict the impact on sales of each change you make. Have you requested your trial yet?

Category: Price optimization

Tags: pricing

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Maria Jose Guerrero
Content Manager

The first dynamic pricing solution designed by and for retailers