3 Strategies for Retailers to Stay Competitive in the Face of Inflation
Consumers and businesses are both being impacted by ongoing inflation. Retailers must change their tactics in the current economic environment. They must understand the trends that have developed as a result of this inflationary environment in order to respond. In this post, I'll look at three tactics retailers may use to weather the current economic storm and not just survive but prosper.
Trend No. 1: A Shift to Necessary Spending
The shift from discretionary to necessary spending is one of the key patterns coming out of this inflationary environment. Consumers are becoming more frugal with their spending, putting more of an emphasis on buying necessities like food for in-home meals, household goods, and other items, rather than indulging in non-necessary things like vacations and eating out, or even buying something not on the grocery list. In fact, an April 2023 survey by PYMNTS indicated that 57 percent of U.S. consumers reported cutting down on nonessential grocery spending. Furthermore, according to Skift, 34 percent of Americans want to spend less on travel this year as a result of rising costs.
In order to adapt to this shift in consumer behavior, retailers must change their business strategies. They must take into account the effect of perceived value, since price is still very important to customers. This entails not just providing high-quality goods that are “worth it” to consumers, but also fostering consumer trust in a company or retailer by providing top-notch customer support and other value-added services. A great example of offering these value-adds is demonstrated by Target, which beat analysts’ expectations by not just offering low prices, but adding other benefits that enhance convenience for the customer, such as in-store and drive-up pickup.
Retailers can also change their pricing policies to lower costs and help customers out with everyday essentials. To address this challenge, retailers can strategically apply discounts, promotions and coupons to items in the "necessary" category.
Trend No. 2: Leaning Into Discount Stores and Warehouses
Another pattern emerging is a rise in the number of people shopping at discount stores and warehouse stores. Consumers are searching for methods to cut costs when prices rise, and these "off-price" retailers are able to satisfy their need to stretch their money farther. In fact, this year, TJ Maxx, Burlington, and Ross intend to open more than 300 new locations altogether, according to Business Insider. These stores are an appealing choice for customers trying to stretch their budgets farther because they sell quality goods for less.
Retailers must adopt a more aggressive discounting strategy if they wish to stay competitive in the current environment. Depending on their target market, retailers may want to think about achieving this by delivering more value-priced products, offering discounts and promotions, and putting an emphasis on operational efficiency to reduce expenses. Furthermore, they can consider either developing their own discount brands (Gap Inc.'s Old Navy, for example) or collaborating with already existing discount stores.
Higher end brands that don't want to rely on discounts or lower pricing models can set themselves apart from inexpensive merchants by providing distinctive, superior goods that aren't frequently seen in the off-price stores.
These merchants can also work to enhance both the in-store and online customer experience. This can be done in-store by providing individualized customer care (Nordstrom is a good example), a relaxing shopping environment, and an aesthetically pleasing store. They can enhance their online experience with features like free shipping and returns, curbside pickup, and same-day delivery.
Trend No. 3: Seeking Value Through Loyalty Programs and Cashback for Shopping
Lastly, retailers are likely to experience an increase in customers looking to save money by using strategies like loyalty incentives and cashback for purchases. Although loyalty programs come in a wide variety of shapes and sizes, their primary objective is to encourage repeat business by offering a discount or other reward. Loyalty programs can be a beneficial tactic to keep customers happy, making repeat visits and spending more with a brand, even in a difficult economy.
According to a McKinsey study, 35 percent of loyalty program participants will choose the brand where they’re a member over competitors. Retailers must design and advertise loyalty programs that provide genuine value to customers when inflation reduces the value of rewards or points.
Customers may benefit from loyalty benefits like discounts, vouchers or cashback to assist them in offsetting rising costs. However, don't forget about the other elements of loyalty programs that Deloitte listed as crucial to customers. These include ensuring seamless cross-platform interactions, providing members with rewards including exclusivity and privileged access, building community, and ensuring high satisfaction at every point of customer contact.
As inflation continues to impact both consumers and businesses, retailers need to adjust their strategies to adapt to changing consumer behavior. To weather the current economic storm, retailers can implement tactics such as adopting an updated discounting strategy, offering a loyalty program that provides real value, and enhancing the shopping experience both in-store and online.
Michelle Wood oversees the merchant network side of the Wildfire Systems platform, which helps companies monetize their users with white-label cashback and coupon services.
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