The Upside of Inflation

Lots of doom and gloom around; especially the spectre of inflation. But, at the risk of showing my age, I cut my teeth in a highly inflationary environment, so here are some lessons/strategies from ‘that’ era:

  • Being slightly over-stocked isn’t as much of a killer as before. The value of your inventory will rise even as it remains unsold. This is a hedging strategy in its simplest form

  • You can buy in slightly bigger quantities, getting better rates, and so benefit even more from the rise in value of your ‘stockpile’.

(This ‘benefit’ of inflation will of course come back and bite your arse if you overdo it and if inflation comes down again and you retain such lazy practices.

  • Inflation is good for the value –operators, as people become more price-conscious. And if value is not your strong suit, it becomes strategically more important to acquire the very useful skill of finding and articulating an alternate value proposition.

  • The smart way of dealing with inflationary prices is apply Webers Law: make small increments regularly that remain below the customer’s perceptual threshold. (This is valid for most products, but more especially those that are NOT bought very regularly.)

From a marketing point of view, the retailer must either:

  • Promote a loss leader very judiciously. Pick a product smartly (i.e to which customers are price sensitive) that will get the customers in the door and then add value and upsell. Or, alternatively

  • Promote the product/category that has NOT increased in price much heavily to convey the message of being a price leader.

And finally of course, great customer service (if properly understood) remains a very effective differentiator, no matter what is happing to prices.