The current rate of inflation has mainly been driven by pent-up demand after COVID-19, which has overwhelmed supply and been made worse by unpredictable supply chains and low availability of labour. Businesses have had to reassess strategies for growth and operating in this new environment.
These are four strategies businesses can pursue to cope with inflation:
Review Products and Pricing
Over time, the number of products and services a business provides can increase with some products selling less frequently and generating lower profit. Managing inventory and measuring profitability at the unit level allows management to identify and reduce, or remove slow-selling low-margin products, and focus the inventory on fast-selling higher-margin products, which helps generate operating cash flow.
Creating product bundles is an approach to combine fast- and slow-moving products as a strategy to “sell-off” slow-moving products. Bundles can also be used to offset lower-margin products with higher-margin products, which is necessary in cases that require businesses to hold both types of goods to maintain customer relationships. Rationalizing products and services enable businesses to be much more efficient at managing inventories, and effective at generating profits.
Bulk or subscription pricing are also strategies to consider. While these pricing models result in lower margins, the difference is compensated with higher volumes and recurring sales. Eventually, it may be necessary to make the decision to charge more. Price increases can be moderate for faster-selling goods, and higher for slower-selling goods. This approach can help businesses remain competitive, and maintain customer and supplier relationships.
Deepen Customer and Supplier Relationships
Maintaining strong relationships with customers and suppliers is a top priority of any business, regardless of the economic environment. Businesses need to know which relationships generate the most revenue and profitability, including the length of time of the relationship. Also, they should keep track of the last point of contact and even personal details such as size of family, habits, etc.
Owners, sales personnel, and support teams can use this information to proactively contact customers and suppliers, regardless of the last time a transaction has occurred. In cases where there has been historically minimal management of these relationships, there is still value in reaching out to these customers and suppliers to demonstrate recognition of their business. Asking how they are managing through the economic climate and sharing “best-practices” will be helpful. These conversations can be casual, over-the-phone, but ideally in-person, perhaps over a coffee.
Enhance Marketing Communications
Marketing is sometimes seen as a discretionary expense, which can be reduced according to profitability. According to Harvard Business Review (HBR), businesses need to be more strategic and selective with their marketing spending during difficult economic times. Marketing communications can be used to describe how products and services provide value to other companies. This is especially effective when attracting new customers.
Using marketing to share relevant economic, regional, and industry insights is another benefit to provide to customers and prospects. HBR also suggests that marketing messages show aspects of a business’ personality or culture and evoke some emotion from the reader. Forbes believes that establishing personal connections and demonstrating authenticity develops a level of trust and brand recognition that can be differentiators in the market. Particularly in challenging times, marketing can be used to increase the value of the brand.
Remove Operational Inefficiencies
When the economy is thriving and businesses are growing, it can be easy to ignore gaps in policies and procedures. As revenue and profits start to decline, these inefficiencies start to have an impact, and they require valuable management attention to resolve the issues. Addressing the gaps can be as simple as using an iterative approach to documenting a sales process for new employees. It can also look like creating a policy to resolve common operational issues.
Implementing automated or digital solutions can also help refine specific parts of the business. Technologies range from simple Microsoft Office tools to comprehensive customer relationship management (CRM) systems, and even applications that manage projects and manufacturing processes. These steps shift attention to time spent on more productive activities, allowing management to quickly identify actionable insights and establish routines and behaviours centered on critical aspects of the business.
Business owners and leaders are facing an ever-changing range of unfamiliar elements. Pursuing these strategies can help businesses weather economic storms and potentially thrive despite them. Beyond the current post-pandemic situation, these strategies can also set the stage for future success.
Nigel Taklalsingh | Contributing Writer