Pricing Strategies During Inflation

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Pricing strategies are some of the most challenging decisions a company must make regularly. These pricing strategies become even more critical in times with record-breaking inflation like now.

According to a recent report from the US. Labor Department, the annual inflation rate for the 12 months ending in May 2022 was 8.6%, the highest yearly increase since the Reagan era.

What pricing strategies can your company use to stay competitive during inflation? Read this article to look at ways to evaluate your current pricing and implement strategies to help your organization through troubling economic times

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Look at Cutting Costs First

The first question a company has to ask is, do they currently need to adjust their pricing? Or are there other steps they can take, like reducing costs that offset the changes in margins lost to inflation?

Looking at different suppliers, a more efficient supply chain, and cost-effective packaging are steps companies can take to lessen inflationary pressures on pricing. 

While times with high inflation and other economic challenges can be difficult, they are also an opportunity for companies to take a hard look at how they are doing business. It is also an opportunity to look for ways to run their business more efficiently. 

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Pricing Strategies During Inflation

Cutting costs and being more efficient isn’t enough for businesses, and they will still have to raise their prices. However, an organization can look at many pricing strategies and find the correct one for their business to regain profits lost to inflation.

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According to the Corporate Finance Institute (CFI), Shrinkflation is “the process of reducing the size or quantity of a product while the price of the product remains the same.”

Shrinkflation has been an increasingly popular practice over recent years and is gaining popularity in these inflationary times. Shrinkflation is popular now because consumers are more focused on an item’s price than the unit cost during times of inflation. And manufacturers can take advantage of this bias.

However, many consumers are put off by the Shrinkflation practice as they feel like the company is selling less as more. Repackaging products as more environmentally friendly or sustainable is one excuse companies use when practicing Shrinkflation. 

Cost-Plus Pricing

Price Intelligently defines cost-plus pricing as: “a method in which the selling price is set by evaluating all variable costs a company incurs and adding a markup percentage to establish the price.

Cost-plus pricing is one of the most basic models for pricing in regular economic times. Yet, it is also popular in challenging economic times. Why? Because, in theory, it’s simple.  

In reality, many companies do not accurately know their actual costs and can miscalculate when setting their prices.

Cost-plus pricing is a tried and true pricing model that many industries, such as retail, use to focus on margin-based profits. However, factoring in the inflation rate can be tricky, and it could price your products out of the current market.  

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Competitive Pricing

Competitive pricing is another popular pricing model that businesses have used over the years. For example, Investopedia describes competitive pricing as “the process of selecting strategic price points to best take advantage of a product or a service based market relative to competition.

Competitive pricing is standard among companies that sell similar products and when the prices of these products have reached an equilibrium. Companies can price their product above, below, or at the median price of the product. 

Businesses like this pricing model in inflationary times as they can adjust the pricing as demand and the market dictate. It also works well with consumers because they can see a trend with similarly priced products and know they are not getting price gouged when prices go up.

Dynamic Pricing

As e-commerce has grown, so has the popularity of dynamic pricing. According to, dynamic pricing is “a strategy in which product prices continuously adjust, sometimes in a matter of minutes, in response to real-time supply and demand.

Online sellers like Walmart and Amazon use dynamic pricing and update the prices on their websites as frequently as every 10 minutes. Dynamic pricing uses e-commerce software and AI that automates the process of monitoring real-time trends in supply and demand to recommend pricing for a company’s products. 

The flexibility with dynamic pricing in times of high inflation allows companies to adjust their pricing to reflect automatically sudden changes in the marketplace. 


Customer Loyalty Programs

While not technically a pricing strategy, customer loyalty programs can significantly offset price increases of a company’s products after the sale. An article from the Food Institute says that “people are looking for deals in this time of inflation.” 

Customers love personalized programs that offer them tangible, customized benefits. Benefits like fuel points, travel miles, discounts, coupons, and cash back programs reward them for purchasing goods and services from your company.

A bonus for companies with effective customer loyalty programs is that they retain more customers and don’t have as much churn as other companies. In addition, providing customers a personalized experience and benefits that show how much you appreciate their business can help ensure they shop with you again.

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In times of inflation, when both costs and prices are skyrocketing, having a sound pricing strategy can go a long way in ensuring that your company can weather the storm. 

No one pricing strategy is going to work for every company. It will take time and research to take a hard look at your current pricing strategy to see if it is sustainable in inflationary times.

However, tough economic times are the perfect time to look at your pricing strategy and how it’s performing in your market. Choosing the right pricing strategy can help you through tough economic times and pave the way for increased and extended success down the road. 

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