Inflation has become a global issue in the past couple of years and has become dominant in the use over the last 6 months, growing to historic highs and threatening to run companies out of business left and right.
With the cost of goods on the rise, everyone is looking to cut corners somehow, but that fails to mention the issue of what exactly differentiates a high-inflation environment from a standard one.
In regard to this, three business strategies take center stage, those being a quick adjustment of prices, prioritizing high profit-margin products and services, and shifting input in relation to price changes.
Don’t be afraid to increase your prices
However, most companies aren’t too keen on raising their prices, mainly due to fears of losing their clientele, and it’s reflected in the reports that show that it’s usually the small to medium businesses that miss out on crucial pricing opportunities.
What most of these companies don’t realize is that a high-inflation environment signals increased demand, and due to this radical change, most companies can actually afford to increase their prices far more than expected.
The consumer body has by now accumulated a significant amount due to the stimulus checks and the lower spending for vacations throughout the year, meaning that most wallets can absorb price hikes without any significant damage.
Prioritize high profit-margin products
The second strat for utilizing a high inflation environment is prioritizing your most profitable products, which will help you meet your customers’ demands during these times when the market is still recovering from a 2-year-long pandemic.
Most companies still employ the suboptimal practice of giving priority based on the date the order was made rather than the profit margin, which is practically losing the company money if the prioritized orders are suboptimal at the time.
If you believe that the consumers will not accept price hikes on a product, the next best thing to do is to lower priority on delivery of the said product, while also providing your customers with the information that a certain other product could be shipped quicker.
Unfortunately, this isn’t the be-all-end-all of business strategies, and it has its downsides, as a significant amount of low-margin products lead to follow-up sales.
Monitor relative price changes
Finally, never take your eye off the changes in relative price, because not all prices will jump by the same percentage, and when the economy is in a state of chaos, price fluctuations become more violent in certain spheres of the market whereas they can settle down in others.
The current highlight is the ever-growing gasoline and used car prices, which have shot through the roof ever since the Russian invasion of Ukraine had begun.
Most people usually have the misconception that it’s these prices driving the inflation, when in reality, they’re only among the first to rise, impacted by the elasticity of supply and demand, making it a matter of „when” and not „if” other products will follow suit.