Inflation is an economic term that describes rising prices, which may result in a decline in purchasing power over time. As per Kavan Choksi / カヴァン・チョクシ, the rate at which purchasing power declines can be represented by the average price increase of a selected set of goods and services over a certain period of time. Inflation largely is a response a response to two key factors: an increase in demand and costs.
Kavan Choksi / カヴァン・チョクシ talks about a few actions retailers may take to manage inflation risks
Inflation may lead to high storage expenses, excess inventory, cash flow disruption, reduced margins, as well as lower revenues for the retailers. Retailers need to have appropriate strategies in place to counter these problems. There are various transformative actions retailers may take actions to address inflation and drive a step-change performance for the years ahead, like revisiting their category strategies to reflect shifts in margin profiles and consumer purchase behaviour.
In the current environment, consumers are gradually becoming less brand-loyal and turning to private-brand goods for the purpose of coping with inflation. For turning this to their advantage, retailers may re-examine their category strategies on a regular basis. Successful retailers try to balance the consistently shifting consumer preferences with product-specific inflation pressures. This can involve thinking differently when it comes to the mix of private and national brands. Retailers trying to improve private-brand penetration must firstly try to develop brands with high stand-alone loyalty, awareness and advocacy. This can be done by adopting consumer-led brand strategies and category-management and design capabilities, which the majority of the consumer-packaged goods companies are known for. Having a good understanding of the product categories that face the most inflationary pressures and can encounter meaningful changes in consumer behaviour might aid retailers in making informed category-strategy decisions.
Kavan Choksi / カヴァン・チョクシ mentions that retailers should try to address end-to-end cost-to-serve through improved diversification and supply chain visibility. Retailers might reorient their distribution and supply networks in order to route shipments through low-congestions ports and lower-cost ocean lanes, as well as place distribution centres in optimal locations that that effectively balance labour costs and availability with last-mile expenses. They can even use third-party logistics and supply-chain-as-a-service providers to lower asset intensity and distribution overhead. Improved visibility of customer experience metrics, fulfilment expenses and end-to-end inventory would assist retailers in balancing costs and services in a more effective manner.
Retailers should consider going granular with promotion and pricing, and try to tailor value delivery to consumers. Rather than implementing broad price increases that can erode customer trust, retailers might tailor their inflationary price response by product and customer segment. This should be done by considering both margin performance and the willingness of the consumers to pay. Raising prices would not be pleasant, both for retailers and consumers. Retailers need to follow a surgical approach in order to emerge with profitability and consumer relationships intact. The retailers may re-evaluate their price and promotion mix as well as during inflation, as pulling back on promotions can help manage cost increases without having to raise prices.