Inflation is at its highest rate for 30 years and fuel costs are set to rise in April and again in October, putting considerable pressure on both businesses and consumers.
Tackling the impact of cost increases will mean putting in place multiple solutions for your business, with the three key areas you’ll need to protect being: your cash flow, your supply chain and your customer base. The strategies covered in this article will help you tackle each of these areas, help give your business confidence during the uncertain times ahead, and set you up to thrive once the crisis is over.
Why Are Prices Rising?
The price increases we’re seeing across the world are being caused by a complex mix of drivers. The aftershocks of the pandemic are continuing to impact the global economy – from forced shutdowns in 2020, to supply chain issues in 2021 and now a rising cost of input prices, businesses are still facing a barrage of cost challenges.
The prices of essential materials are continuing to shoot up. For instance, The London Metal Exchange Index of six key industrial metals has doubled since the middle of the pandemic. In the print industry, we’re also seeing the prices of many of the key materials we use soar, including paper and the aluminium we use to create plates for the printing process.
One driver of these price increases is rebounding demand. After months of repressed activity during lockdown, consumers are more than making up for it. Another factor is limited supply: early on in the pandemic, many industries were quick to cancel orders with suppliers, leaving companies short of finished goods when the economy started to recover.
Gas and electricity prices are also at unprecedented levels right now following a particularly cold winter in Europe which has put pressure on supplies, and a relatively windless summer in 2021 which made it difficult to generate wind energy.
On top of this, Russia’s invasion of Ukraine is adding further pressure to gas supply. Russia is the third biggest producer of oil in the world, and Russian gas accounts for about 40% of the EU’s natural gas imports. While the US has announced a complete ban on Russian gas and oil consumption, the UK is phasing out its use by the end of the year and the EU is reducing Russian gas imports by two-thirds. This has led to sharp rises in gas and electricity prices and there could be more on the horizon if Russia halts exports in response to sanctions.
As well as affecting household gas and electricity prices, this also has a huge impact on the whole supply chain, as it costs more for businesses to run and for couriers to transport materials and goods.
When Will Prices Stop Rising?
Although some believe the price rises are transitory, others foresee a sustained period of inflation which will be accelerated by a wage-price spiral that could drive up costs for companies that haven’t yet seen much of an impact from the price increases.
Due to the number of different drivers behind the cost increases, it’s difficult to predict when price stability will return – which is why it’s important for businesses to start putting strategies in place to mitigate the effects of rising prices now.
4 Strategies for Manoeuvring Rising Prices
1. Plan Ahead for Price Increases
No one could have predicted such a sharp rise in inflation like the one we’re currently seeing, but prices have been rising as the pandemic has become less and less of a threat.
One of the most effective ways to plan ahead for these continued price increases is to reassess your budget to see where you can reduce spending in other areas to accommodate for costs rising in your supply chain and energy usage.
Managers must identify where costs should be pulled back and cost savings realised – look at where budgets can be trimmed down to improve the return on investment. A focus on spending better can enable a company to sustain a competitive advantage against competitors in the industry who are also facing the same price increases.
The levers you might look at pulling could include the final product price, the sort of materials that you use or the method you produce the product – all of which can save on costs, but you need to keep your end product and quality in mind. Assess which levers would cause the least disruption to your customers and make sure to remain flexible.
2. Effectively Communicate Price Changes to Your Customers
Consumers now know that many companies will be required to increases their prices because of inflated costs and supply chain challenges – and they’ll be more accepting of the price changes if you’re up-front and transparent about them. Here are our top tips for talking to your customers about price increases.
Get in touch directly
A personalised email or letter is the best approach to discussing price changes. Send an announcement out to customers and open up conversation about the changes you’ll be making.
Be transparent with price changes
Whether it’s supply chain issues or increased costs of materials, you should always justify why prices are increasing. Sharing your situation is the most transparent way to help customers understand why they may have to pay more for your products.
Not only does communicating with customers before the price changes make it easier for them to come to terms with increased prices and give them time to reassess their spending, it also encourages them to spend money with your business before the changes come into effect.
Honour your commitments
If customers have already placed an order or received a quote from your business, you will still need to honour the price you’ve originally quoted. Similarly, if the customer has vouchers or discount codes to apply to their order, they must still be valid until the original expiration date. If your supply chain is particularly volatile, it’s a good idea to reduce terms that quotes and promotions are active for.
Remind customers why they chose you
Chances are, your customers didn’t choose you because you based purely on your prices. In fact, according to a recent survey, 71% of consumers prefer buying from companies aligned with their values. Maybe it’s your sustainability ethic or product quality they love. Reiterate your USPs to remind customers of all the reasons why they love your brand and how you are still providing them value.
Open up the conversation
Give customers the option to get in touch with you if they have any further questions or concerns. Share the best way to contact the team as part of your communication.
Educate your team
If you’re increasing your prices, it’s very likely that customers will get in touch to ask why. Make sure your whole team is on the same page by communicating the reasons why you’re making changes. This ensures consistency across all business communications regarding the price increases.
3. Lower Your Energy Costs
As consumers, many of us are already limiting our energy consumption by switching off the heating to save costs – but it isn’t just consumers who are feeling the squeeze.
Many businesses are on fixed-term contracts, meaning that there may be one or two more years of paying a set price before having to renegotiate with your provider at the end of the contract. But what can businesses whose contract is coming to an end right in the middle of an energy crisis do to mitigate costs?
Fundamentally, it might be time to review your business operations and see where you can cut down. As well as ensuring equipment is turned off rather than left on standby mode and that lights are turned off outside of business hours, you could also look at how feasible it would be for your team to work remotely, reducing the need for large, expensive premises.
In the long run, it will also be worth investing in more energy-efficient equipment, such as lightbulbs.
Although all of these may produce a small impact individually, the joint effect will be far greater than the sum of its parts and can make a real difference to your energy costs.
For more cost-effective solutions, check out the results we’ve seen so far as part of our internal War on Waste campaign.
The earlier you take action, the easier energy costs will be to manage. Make sure to get in touch with your provider as soon as difficulties arise; they may be able to offer you a more manageable payment plan.
4. Recalibrate Your Product Portfolio
Price is one of the first levers a company pulls during times of uncertainty, and while most will be forced to look at increasing prices, there are other options.
Bundling or unbundling your product offerings is one way to expose customers to lower price points – you can offer a deal on bundles, or sell separate goods or services that are of an existing bundle.
You could also introduce less expensive alternatives to your current product offering, giving customers an economy option if they’d still like to order from you but can’t afford price increases on your premium range.
Although they might not seem like it, rising costs could offer an opportunity for expanding your range and repositioning your business.
Applying these strategies will equip your business with the necessary tools to deal with the turbulent times ahead and come out the other side stronger. Knowledge is key, so ensure you’re prepared for where prices will increase and what this might mean for your bottom line, areas where spending can be streamlined as well as how you’re currently using energy to identify potential savings.
Whatever changes you make to your price or product offering, make sure to communicate clearly with customers to help them better understand why these changes need to be made and when they’re coming into effect. We recommend sending out a business letter for a personal touch.