November 17, 2022

How To Combat Inflation in 2022: Part 1

by 
Julie Sautter
Trade Finance
Featured

Part 1: Price Increases

Over the next few months, we’ll explore different ways to combat inflation in CPG. But first… what is inflation?

Inflation is the decline of purchasing power of a currency over time. In other words, one unit of currency today buys less than it did yesterday. Given current supply chain challenges, continued impacts of COVID-19, and global labor shortages, inflation is creeping up everywhere! Because of this, many companies are experiencing diluted margins, and are having great difficulties staying profitable.

Thankfully, Vividly helps combat inflation! Today we will explore price increases and how we help our customers implement them.

A price increase is the ultimate band-aid solution: it is everyone’s least favorite way to combat inflation, but in the end it works. During a price increase you’ll raise the cost of your product, thus forcing your retailers to increase the price on the retail shelf.

Before implementing a price increase, it is critical to understand the market. Is your product already the most expensive on the shelf—are you close to the price ceiling? Or are you attuned to the price floor, where you might have some wiggle room? Moreover, how price-sensitive are your consumers— are they likely to continue buying your product even when its price increases?

Price ceilings and price floors play a large role in deciding how much to increase prices. This is where Point of Sale (POS) consumption data becomes your best friend. POS data allows you to figure out suggested retail prices (SRPs) for your products. If you’re close to the price ceiling, you might want to rethink that price increase. But if you’re closer to the price floor, you likely have some room! We recommend reviewing your top 10 retailers to audit your pricing.

After figuring out your SRPs, it’s also important to understand your consumers. If you’re close to the price ceiling and your consumers are not price-sensitive, you likely will not see a major impact on the number of units you sell. However, if you are closer to that price floor and your consumers are extremely price-sensitive, you will be sure to see an impact.

A better understanding of your consumers will help you understand how a price increase impacts velocities (units sold, per store, per week). Velocity is a key metric retailers use when deciding which stores and which shelves to put your product. We recommend starting small with any price increase and evaluating the results first. In most cases, you’ll quickly notice the impact—perhaps your loyal consumers continued to buy despite the price increase, and a bigger increase may be in the cards. Or perhaps the price increase didn’t turn out too well, and your price-sensitive consumers started buying alternative products. Either way, you will have gathered valuable data! And with a TPM solution like Vividly, all your data will be in one place, and you’ll be able to quickly run reports and figure out how your price increase played out.

One final word of advice: when executing a price increase, make sure everyone from every department knows when the price increase is happening—especially your customer service team, as they’re on the front lines. This is also where a TPM software becomes even more critical—you’ll need to start adjusting your volumes and EDLPs! In fact, Vividly allows you to execute a price increase, adjust volumes, and analyze the results with just a few clicks.

Hopefully this makes you feel more comfortable implementing price increases! If you’re interested in how Vividly makes this process simple, get a demo with us today. Stay tuned for part 2 in our series, where we will dive into promotional ROI, eliminating waste, tying your demand plans to a trade plan, and more.

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