Ecommerce and retail businesses are struggling to maintain revenue and profits. In 2022, inflation rates in the United States rose to levels unseen since the recession of the early 1980s. On the heels of geopolitical conflict and the lingering effects of the pandemic on commerce and the global supply chain, inflation peaked in June of last year at 9.1% year-over-year and remained at 6% in February of 2023. These rates contract starkly with the prior 60-year average of 3.8%.
Decision-makers face tough choices in this challenging economic climate. Simply passing the cost of inflation on to consumers in periodic price hikes can harm customer relationships. Nevertheless, many businesses cannot weather inflation-reduced revenue and profits indefinitely.
So, what can you do? This guide explores steps you can take to boost profitability during prolonged inflation and depressed consumer spending.
Key Takeaways
- Inflation rates in the U.S. remain locked at 40-year highs.
- As costs go up and consumer spending constricts, businesses must decide how to curb losses in revenue and profits.
- Without risking losing customers to inflation-matched price hikes, businesses can take several steps to drive profitability by rethinking current strategies and adopting new technologies.
5 Ways to Mitigate Inflation Losses and Drive Profitability
Like the consumers they serve, ecommerce and retail businesses have no magic wand to wave over the problem of inflation. However, there are strategies sellers can use to maintain healthy revenue and profits.
1. Build Brand Loyalty
When consumers tighten their belts and make necessary spending reductions, they become more willing to ditch familiar and even preferred brands for cheaper alternatives. Businesses that understand this can develop customer loyalty and retention initiatives that specifically target price-conscious customers. Useful strategies include:
- Creating loyalty incentives: 49% of consumers spend more with brands that offer loyalty rewards, such as redeemable points or discounts. Incentivizing loyalty can retain customers and boost their average spending.
- Bundling necessities and products purchased together: Even as consumer purchasing power diminishes, some purchases, such as foods and other consumables, remain unnegotiable. If you sell products your customers will buy from someone, in any case, maximize the value they receive by reducing the overall cost of bundled purchases.
- Retargeting marketing to communicate your brand’s value: Businesses always need to communicate the value of their products and services through marketing. However, in less austere conditions, value is just one of many possible messaging points to target. In tough times, businesses must be sure to deliver the message their customers need to hear.
2. Maintain Stock
Stresses on the global supply chain have dramatically reduced the ability of businesses to reliably fill orders. Typically, stockout rates for ecommerce and retail businesses hover around 8%. However, since the start of the COVID-19 pandemic in 2020, businesses have experienced a 250% surge in out-of-stocks.
Building a robust inventory with higher thresholds may take time, but the benefits are worth it. Regularly disappointing customers with unreliable inventories can drive them to the competition. Alternatively, building a reputation for consistent inventory and service may also win you new market share from competitors unwilling to adapt.
3. Price Competitively
Declining to raise prices to cover inflation losses doesn’t mean you shouldn’t raise prices at all. Even in times of reduced demand, sales tend to go to the most competitively priced sellers. As long as you continue to beat the competition, you can raise prices on many items to recoup inflation losses.
The best way to implement real-time competitor pricing is to use a pricing engine. A pricing engine tracks competitors’ prices on targeted items by regularly pinging their sites’ APIs. As the competition adjusts prices up or down, you can match their movements within a specified range of points.
4. Restructure Sales and Marketing Efforts for More Profitable Niches
In past economic conditions, you may have relied on high-margin or high-volume products that now perform less effectively to sustain profitability. Evaluate your recent margins and sales volumes to identify products trending either upward or downward in both profitability and demand.
You may find that current demand conditions have changed what profit optimization looks like for your company. There’s often the potential to drive profitability by directing your marketing and sales efforts toward moving different, more profitable products.
5. Leverage New Technologies
While the past few years have brought major economic challenges across industries, they’ve also seen amazing technological advancements that can aid decision-making and improve business performance. At the forefront of these, analytical and predictive capabilities based on artificial intelligence (AI) have grown by leaps and bounds.
In the past, businesses dedicated considerable time and resources to analytical processes based on manual spreadsheet work. Many are now finding better-performing and more cost-effective solutions in AI platforms that generate predictions and recommendations. AI has been shown to excel in tasks such as:
- Lowering supply chain management errors (by 20-65%)
- Reducing lost sales due to stockouts (by 65%)
- Reducing warehousing and administrative costs (by 5-10% and 25-40%, respectively)
AIs have become so reliable for improving business performance across a vast range of metrics that a China-based video game with a market valuation above $1 billion appointed the world’s first AI CEO last year. In the six months since the appointment, NetDragon Websoft has outperformed Hong Kong’s Hang Seng Index month-over-month and seen its share price rise by 10%.
While this is an extreme example, it illustrates how powerful AIs can be as data-driven guides to traditional executive decision-making processes. Experienced leaders have valuable instincts. AIs give those leaders a data-grounded reference frame against which to check and adjust their intuitions. Even when the economy rebounds, these technologies will continue to reshape how organizations conduct business. Those who want to thrive in the long term – and not just survive current challenges – must embrace these new technologies as opportunities for growth and development.
Actionable Insights and Recommendations Powered by AI with Hypersonix
Hypersonix Profit OS enables powerful data insights and actionable recommendations to drive profitability. With real-time monitoring of your business’s performance data and a diverse range of external market conditions up and down the supply chain, Hypersonix can deliver improved profits, revenue, and cash flow.
To learn more, request a demo of Hypersonix Profit OS today.
