If your store has been feeling the effects of inflation, you’re not alone. Though rising inflation in the US has begun to slow down in recent months, many e-commerce merchants are facing the fact that they may have to adapt pricing to inflation to protect their profitability.
But knowing how to react and adapt your price structure to inflation can be confusing. If you price too high, you risk losing valuable customers to your competitors. If you price too low, your profit margins may suffer.
So what are the best strategies to adapt pricing to inflation? And what are the best ways to communicate these price changes to your customers?
In this article, we’ll cover some of the latest insights on inflation and how it affects consumer spending. We’ll also cover how to adapt your e-commerce pricing strategy to inflation so you can preserve your margins and continue to grow a loyal customer base.
Making adjustments to product pricing while still retaining customers can be tough. But with the right strategy, you can adjust pricing in a way that fits your business goals, while still keeping your best customers on your side.
E-commerce Inflation and Pricing Covered
- What does inflation mean for commerce?
- What has been the impact of inflation on online shopping specifically?
- How much should I raise my prices based on inflation?
- 5 ways to adapt pricing to inflation
- Adjusting to e-commerce inflation and pricing strategically
What Does Inflation Mean for Commerce?
When it comes to commerce, working with instead of against inflation means getting creative.
It’s about rethinking your pricing strategies so you can meet customers where they are, without sacrificing your margins. Without understanding this intricate dance, both merchants and consumers risk not having their needs met.
Let’s take a closer look at how inflation typically affects the retail industry.
How does inflation affect the retail industry?
According to a report by Bank of America, 88% of business owners say inflation is impacting their businesses. Of those surveyed, only 31% felt confident that the national economy would improve and only 39% felt satisfied their local economy would improve.
As far as specific industries go, revenue is healthy in the beauty and luggage categories, but all other industries are taking a profit hit, especially apparel, electronics, and appliances, according to a recent report by JungleScout.
Unsurprisingly, the same report also found that grocery is one of the categories most affected by inflation, with some products jumping as high as 35% in the last year.
The good news?
Even amidst these drastic economic changes, 86% of brands reported positive experiences when raising prices, with revenues either increasing or staying the same.
As far as what lies ahead, McKinsey reports that inflation will create opportunities.
“Inflation is a challenge for commercial leaders, but it also creates opportunities . . . The first is to maintain margins and rectify the pricing mistakes of the past. The second is to help frontline salespeople move beyond mere pricing discussions with customers to deeper communication about shared business concerns.”
The way the experts at McKinsey see it, companies that do this well can improve their margins, revenue, customer loyalty, and even their ability to respond effectively to future shocks in the market.
Does raising prices increase inflation?
Since inflation measures how much more expensive goods and services have become over a certain period, raising prices does increase inflation.
At the end of the day, consumers and brands must do their due diligence to work with, not against inflation so everyone can win. This is particularly true when it comes to the world of online shopping.
If you’re not sure how much to increase your prices, the Adobe Digital Price Index provides a helpful benchmark. After this Q&A, you’ll find five proven strategies for adapting prices during inflation.
What’s the Impact of Inflation on E-commerce?
Online shopping continues to shapeshift as inflation rises and falls. If you’re wondering how this teeter-totter impacts the world of e-commerce, we’ve got quick answers to some of the most frequently asked questions on the subject.
Let’s take a look.
How does inflation affect e-commerce sales?
To cope with drastic economic changes, it’s only natural that consumers have become more price-sensitive.
According to the previously mentioned JungleScout report, consumers are shopping for deals and savings more than ever before, with 52% of shoppers only buying discounted products or products that are on sale.
For a shopper to agree to pay more for an item, the product and/or brand must deliver tremendous value or risk losing the customer to a competitor.
How does inflation affect prices?
As the costs of goods, supplies, materials, and shipping costs continue to increase, brands have been forced to take matters into their own hands (think in-house production and distribution), get creative with marketing offers, and/or increase their prices to stay afloat.
Is Amazon affected by inflation?
Nobody is immune to the effects of inflation. That includes major retailers and e-commerce marketplaces, such as Amazon, Walmart, and Costco, as well as growing DTC brands.
How Much Should I Raise My Prices Based on Inflation?
A solid understanding of your business and when and how to adjust prices is crucial to staying competitive, profitable, and keeping your customers.
When it comes to raising your prices, you need to consider your business’s unique goals along with consumer demand, competitor pricing, and updated manufacturing and material costs. Let’s peel back the curtain on this a bit more.
What to Consider When You Adapt Pricing to Inflation in E-commerce
The first step to adjusting your pricing is to take a hard look at your business budget. Are there any costs you can absorb or adjust to account for inflation? Can you cut out any middle suppliers or get your hands on more affordable, but still high-quality materials?
According to the McKinsey findings:
“We see best-in-class companies encourage their sourcing and engineering teams to reimagine products most affected by inflation. The aim is to adjust product design — materials, packaging, or even product features — in response to elevated production and servicing costs while maintaining the functionality customers require.”
Next, consider the market. Consumers are less price-sensitive with high-demand products, which means you have more flexibility to increase your pricing here.
From there, take a look at your competitors. What are they charging for best-sellers? What about low-demand products? Consider using software to help you automatically track changes in competitor pricing.
Finally, consider the time of year. Are consumers going through a financial tight spot after the holidays? Or did they just get a tax return and are ready to spend it?
By keeping these factors in mind, you can protect your margins, serve your customers, and respond to economic changes strategically.
5 Proven Ways to Adapt Pricing to Inflation in E-commerce
Now that we’ve laid the groundwork, let’s explore five specific ways you can adapt your pricing to inflation.
1. Charge more, give more.
When you have no choice but to charge more, you can make up the difference by giving more.
“In South Africa, the chain Albany Bakeries knew they had no choice but to raise prices. But their customers are very price-conscious and feel a lot of economic pressure. So when Albany Bakeries raised bread prices, the company also added four extra slices to their loaves. They charged more, but they gave more. By adding those extra slices, customers felt they were getting more for their money.” – Ravi Pillay, a faculty member at the University of Pretoria’s Gordon Institute of Business Science
While a simple change, Albany Bakeries knew that communicating additional value was the way to help their customers feel at ease about investing more money in their products.
Whether it’s including extensive features, adding a free sample item, or increasing product quantity, giving your customers more can help ease the blow of having to pay higher prices.
2. Offer BOGOs and other promos.
Due to lower consumer confidence and increased value-seeking behaviors, online shoppers are conducting ample research before they spend money. This has led to a 30% jump in search interest for the phrase “buy 1 get 1” (BOGO) based on year-over-year comparisons.
Despite higher prices, offering BOGO deals and other special promos can encourage consumers to continue shopping with the brands they love most.
3. Raise prices AND offer loyalty rewards.
It’s also important to note that there’s been a 45% surge in search interest for the phrase “loyalty program” over the same period.
While price increases may be steep for some shoppers, offering loyalty rewards can make up the difference. If you have to raise your prices, consider starting a VIP program, a rewards program, or offering members-only deals your customers can’t say no to.
4. Raise some prices and lower others.
To keep up with inflation, consider lowering the prices of products that are less in demand and raising the prices of products that are high in demand.
You can also highlight cheaper products in segmented marketing campaigns to communicate to your customers that you still have budget-friendly options to choose from.
5. Price according to “good, better, best.”
Put the purchasing power back in the customer’s hands by creating alternative versions of the same product at higher or lower price points.
Consider using the “good, better, best” strategy that many SaaS companies use when designing their monthly subscription plans.
For instance, if you sell skincare sets, you might offer the following good, better, best options:
- Good: Skincare Set 1 – Face wash, toner, moisturizer
- Better: Skincare Set 2 – Face wash, toner, moisturizer, serum, mask
- Best: Skincare Set 3 – Face wash, toner, moisturizer, serum, mask, eye cream, anti-aging oil
Adapting Pricing to Inflation Strategically
Retaining customers while you’re in the middle of a repricing plan can be challenging at best.
But with the right insights and strategy, you can modify pricing in a way that both fits your business needs and maintains customer loyalty.
At SellersFunding, we’re passionate about helping sellers navigate times of growth and change. With our flexible funding solutions, you can rest easy knowing your store will have the capital it needs to face any hurdle, no matter what’s happening in the economy.
Are you ready to adapt your pricing to inflation with care, thought, and integrity? We hope the insights and tips we’ve shared today have given you the confidence you need to reprice with ease.
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