Across the world, retailers are feeling the strain of a volatile market, characterized by persistently high inflation, rapidly changing consumer behaviors and the threat of global recession. With 2023 off to a shaky start, leading the IMF to adjust its initial forecast for the year, in April, anticipating higher global inflation and decreased economic growth, retail is being challenged to recall and bolster the resilience it showed throughout the pandemic.
Now more than ever, retailers are feeling the financial squeeze, pinned between rocketing supplier costs and increasingly price-conscious shoppers. With total retail sales worldwide expected to grow by only plus 3.9 percent in 2023, down from plus 6.9 percent the previous year, retailers are fully focused on the bottom line and how to protect their margins.
Falling back on old solutions
In times of economic downturn, many businesses default to cost-saving measures, limiting expenses by reducing headcount, closing stores or downsizing sites. While these actions can offer short term margin relief, they also run the risk of inhibiting growth in the long term by scaling back the business. Moreover, the current rate of inflation is so significant and chronic that cost-cutting measures simply can’t provide enough of a cushion to make a lasting difference.
On the other hand, prioritizing pricing provides retailers with both an immediate and long-term solution that doesn’t jeopardize future growth. Implementing the right price changes, based on accurate and up-to-date cost data, is the best way for businesses to maximize profits and minimize margin leakage.
Pricing in practice
Across the retail and consumer goods industry, we’re seeing a varied approach to pricing in response to current market challenges and high levels of margin erosion. Certainly, from the point of view of the consumer, it feels as though, from food to fashion, prices are being marked up everywhere to cope with rising costs. At the same time, we’re also seeing many businesses, particularly grocers, introduce price “freezes” or “locks”, to offset price rises, appeal to cautious consumers and retain brand loyalty.
Then there is a notable portion of businesses which are not implementing price changes at all. In the UK, 45 percent of businesses are not planning price rises, despite 74 percent reporting concern about inflation and 38 percent of retail firms experiencing a decrease in sales over the past three months. In the US, 35 percent of small businesses have yet to introduce price increases even amid significant inflationary pressures.
One of the key reasons that pricing isn’t being leveraged to its full potential is that pricing professionals often lack the tools they need. Relying on manual pricing processes – often built around a matrix of spreadsheets – is time-consuming and can require days’ worth of work laboring over even the most straightforward adjustments. The delay in implementing price changes prevents businesses from reaching their full margin potential, reacting too slowly to cost changes and market trends.
This time-consuming manual approach to pricing also represents a challenge for retailers that are active in multiple markets or channels as the lag often creates a window in which some customers are paying less than others, resulting in even greater revenue loss.
Surgical precision with a digital solution
Effective price changes require precision and agility. Pricing teams need the ability to execute nuanced pricing based on robust data and margin visibility across all categories, customers, regions and SKUs to determine which products need to be ring-fenced and which can afford to be raised to deliver gains. Without this, retail and consumer goods businesses can often revert to introducing blanket changes, running the risk of alienating customers, and damaging brand loyalty and reputation.
Throughout the last two decades of digital transformation in business, pricing has been largely overlooked but current market challenges are catalyzing change. By automating price execution, businesses can roll-out complex changes with an infinite number of rules simply and quickly, and also have the capacity to focus on strategic pricing projects.
Profitability and pricing go hand in hand, with price as the number one factor influencing purchasing decisions. As retailers face unprecedented pressures and grapple with soaring costs and inflation, it’s more important than ever that they’re making informed decisions, executing changes fast and implementing promotions with precision.
Intelligent, automated pricing empowers retail and consumer goods companies to execute their pricing strategy with ease and confidence by delivering real-time margin visibility and complete traceability across all aspects of pricing. With the Flintfox Intelligent Pricing Platform, businesses can update pricing in a matter of seconds, adjusting by region and channel simply. Connecting pricing data across omnichannel retail, Flintfox enables businesses to implement price adjustments while matching the speed at which the wider market is changing, optimizing margins and protecting profits while simplifying labor-intensive manual work.
For a list of the sources used in this article, please contact the editor.
Chris Dieringer is Chief Customer Officer at Flintfox. Flintfox is a global leader in intelligent pricing software. The company is on a mission to help retailers and FMCG businesses make incremental gains by expertly executing their pricing strategies, identifying opportunities for margin growth, enabling sales teams to generate bespoke prices on the spot as well as managing rebates and promotions with precision.