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Why communicating pricing is key in times of high inflation

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You may recall Salt Bae, the man behind the infamous chain of Nusr-Et Steakhouses. When he opened his London outpost in Knightsbridge, social media and newspapers couldn’t get enough of his gold covered steaks costing £1,450. That was in 2021 – fast forward to summer 2023 and it turns out that even the capital’s most obscene restaurant isn’t immune from the cost-of-living crisis.

In times of high inflation, pricing products or services becomes a challenging task for businesses across various industries. Inflation refers to the general increase in prices of goods and services over time, leading to a decrease in the purchasing power of consumers.

You may think that the kind of consumer that dines at Nusr-Et is immune from economic downturns, but during the 2008/9 recession, even the luxury market took a 10% hit. Time Out reported this week that Salt Bae has been forced to cut prices to get customers in the door – offering a £39 set lunch menu. So, is this a sign that inflation is impacting even the super wealthy or just that a ridiculous pricing strategy needs adjusting in very different times?

As prices rise across-the-board, businesses must carefully navigate the impact of inflation to maintain profitability and meet customer expectations. Here’s some of the ways pricing strategies are challenged during periods of high inflation:

1. Cost increases:

During inflationary periods, the costs of raw materials, production, and distribution tend to rise. Businesses often face higher expenses, and these increased costs may force them to raise the prices of their products or services to maintain profit margins.

2. Demand fluctuations:

High inflation can affect consumer spending habits, leading to changes in demand for certain products or services. Some customers may become more price-sensitive and reduce their spending on non-essential items. Businesses need to monitor these demand fluctuations and adjust their pricing strategies accordingly.

3. Competitive pressures:

Inflation can create competitive pressures, as businesses may be hesitant to pass on the full cost increases to consumers. Companies operating in competitive markets may choose to absorb some of the cost increases to retain their market share, affecting their profit margins.

4. Consumer perception:

Perception plays a significant role in pricing decisions. In times of inflation, consumers may perceive higher prices negatively, even if they understand the reasons behind the increases. Businesses need to communicate effectively and justify price adjustments to manage customer expectations. Long form content can help you explain your value proposition and how potential customers can still get value from your products or services.

5. Pricing strategies:

Businesses may need to reconsider their pricing strategies during inflationary periods. Some may opt for value-based pricing, emphasising the unique value and benefits their products or services offer. Others may introduce smaller, more frequent price adjustments rather than significant one-time increases.

6. Cost pass-through:

For businesses that operate in industries with fixed-price contracts or long-term agreements, cost pass-through becomes crucial. These businesses need to negotiate with suppliers or clients to account for the impact of inflation on costs.

7. Price elasticity:

Understanding price elasticity is vital during inflationary periods. Price elasticity measures how sensitive consumer demand is to changes in price. Products with low price elasticity (inelastic demand) are less affected by price increases, while highly elastic products may experience significant drops in demand.

8. Customer retention:

Inflation can lead to higher customer churn rates as consumers may seek more affordable alternatives. Retaining loyal customers becomes essential, and businesses may consider offering loyalty programs, discounts, or incentives to keep customers engaged.

9. Reviewing profit margins:

In times of high inflation, businesses should review their profit margins carefully. While increasing prices may be necessary to cover rising costs, setting prices too high could drive customers away. Striking the right balance is critical for sustainable growth.

10. Price transparency:

With the rise of online shopping and comparison platforms, price transparency has become crucial. Businesses must be mindful of their pricing visibility and ensure it remains competitive in the digital marketplace.

Pricing is one of the fundamental ‘4 P's of marketing’ and it’s never more important to get it right than in times of economic uncertainty. How you communicate this key - contact us today to see how we create and distribute inspiring, on-brand content that performs.