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Price elasticity in the age of inflation

June 27, 2022

Article Courtesy of Exceedra Pty Ltd

Right now with the war in the Ukraine pushing up oil and gas prices, supply chain costs are increasing further to add to the supply chain woes already being experienced. Inflation is rife in a number of countries, with fears of stagflation becoming common. Depending on the category, consumers are paying up to 20% more for goods now than 12 months ago. The rising costs of doing business have had to be passed on somehow.

A convergence of macro and micro trends is impacting retailers and manufacturers, with both wanting to recover costs. One of the ways to do this is by realizing price; increasing it versus dealing back margins on volume buys. We’re already seeing this. But how far can price be increased before a consumer backlash is experienced either in brand switch or category abandonment? What are now the right price points to maximize revenue and margin?

A Revenue Generation Management (RGM) analytics solution, complemented by a Trade Promotion Management (TPM) system can help here. Using historical sales and pricing performance data and artificial intelligence, including promotional price points and uplifts, cannibalization, and pantry loading, price elasticity at different shelf and promotional price points in a given category can be determined.

Rather than operating offline from spreadsheets, an integrated RGM and TPM solution enables quick and easy adjustments to pricing and promotional strategy based on analysis of historic data. Given the continuing uncertainty around supply chains and global impacts on pricing, a nimble way to continually adjust pricing strategy according to fluctuating elasticity measures is becoming increasingly important.