How to Manage Price Inflation

Oil futures went up a historic 9 percent on June 6th. You and your customers will continue to see the effect every time you hit the gas pump. Your customers will be more concerned than ever before about prices. You are concerned about prices for the goods you buy and the ones you sell.

What can you do to manage your business through the deepening economic challenge that we are facing?

According to John Quelch, a professor at Harvard Business School, there are seven things to keep in mind.

1. Understand Your Customers. What are they doing as prices rise?

2. Invest in Market Research. You must get out into the marketplace yourself and talk to consumers directly to understand their pain points and how they are changing attitudes and behaviors in response to price inflation.

3. Redefine Value. To motivate cash-poor consumers, marketers must reverse engineer products and packaging to hit key retail price points. This may mean downsizing package sizes, something the candy industry always does in response to inflation.

4. Use Promotions. More customers than usual will be looking out for price promotions, but don’t give away the store to those who don’t need the discount, and cut prices not across the board but only on items selected as your inflation-busters.

5. Unbundle. Customers who previously welcomed the convenience of buying product, options, and services rolled into one may now ask for a detailed price breakdown. Make it easy for your more price-sensitive customers to better cherry-pick the options and services that they truly need by giving them an unbundled menu of options.

6. Monitor Trade Terms. Manage your inventory on a last-in, first-out basis to insure that increases in your realized selling prices do not trail the increases in your input costs.

7. Increase Relevance. You need to persuade customers to cut back their expenditures on other products, not on yours. Strong brands can hold consumer loyalty while increasing retail price points. Weaker brands risk private label and generic substitution.

During this challenging time you need to educate your customers and give them some pricing options. And remember to emphasize your product’s benefits.