Marketing Becomes a Profit Center Instead of Cost Center Due to Inflation
The U.S., among many other countries, is facing record inflation. Businesses and consumers alike are already facing the consequences. But how is inflation specifically affecting retail companies, and how are they responding, especially regarding marketing? GetResponse conducted a study to understand the situation.
According to the Bureau of Labor Statistics, the annual rate of inflation in the U.S. hit 8.5% in July this year. While this is a slight fall from June’s (9.1%), it is still close to a multi-decade high. Consumers are already feeling the pinch in the form of increased prices of many products. Further, high inflation rates are expected to continue in the near future.
But how is inflation affecting businesses, especially retailers and online store owners, and how are they responding to it? More importantly, how does this affect their marketing? To understand the situation better, GetResponse recently conducted a study.
The following are a few key insights from the study.
Inflation Is Affecting Most Businesses
According to 79% of retailers, their businesses experienced inflation’s effects over the last six months. And this was irrespective of whether the respondents had just started to grow their businesses, were profitable businesses struggling to bring more traffic or were established with a growing client base and steady revenue.
Interestingly, the only group of retailers that seemed less affected by the inflation (21%) was “blooming shops.” In fact, they experienced growing clients and revenues. Within this group, 65% said inflation impacted them.
The possible reasons for being less affected were:
- These businesses pursued marketing strategies that gave them an edge over their competitors, or
- They sourced their products locally, thus being less susceptible to supply chain issues.
See more: Supply Chain Issues Foster Retail Marketing Evolution To Bolster Consumer Loyalty
Customers Face the Brunt
How did businesses respond to inflation? Unsurprisingly, 72% of companies planned to increase prices within the next six months, and 13% were unsure. Only 15% said they wouldn’t raise their prices.
Percentage of retailers planning to increase prices in six months
Source: GetResponse survey
W.r.t. the segments that planned to increase the prices by the highest percentage, 49% of grocery businesses planned to increase the prices by 7-10% or over 10%. Within this segment, 96% said inflation affected them.
Retailers Blame Supply Chain Challenges
Did retailers face any problems and price increases related to the supply chain? For the most part, price increases were similar to those observed above. About 89% of retailers experienced a rise in supply chain costs in the last six months. Retailers may be passing the increased costs to their customers.
Regarding how much the supply chain costs increased, for most retail segments, they had increased by 3-7% on average. Two segments where costs had gone up by an average of 7-10% were furniture and grocery.
Retailers also faced a few supply chain challenges. The top three issues were increasing freight costs, material scarcity, and changing customer attitudes.
Main supply chain problems retailers faced in the last six months
Source: GetResponse survey
Consumers Are Responding in Different Ways
While inflation and costs go up, consumers change their buying behaviors. The study found that 46% of retailers saw a slowdown in their businesses. However, for 32% of respondents, sales remained unchanged. About 22% of retailers saw increasing sales.
Regarding product categories, there were no particular winners or losers. The same went for companies at various stages of growth.
Retailers Plan To Grow Online Presence
How do retailers plan to grow their businesses, and where do they plan to place their focus over the next six months, i.e., online or offline? According to the study, 60% of respondents intend to focus on online selling or switch completely to online selling. This may be expected as businesses had to transform themselves over the last two years. They had to come online and can be expected to continue the journey. Simultaneously, online selling is also connected to lower costs and higher scalability.
About 28% said they would keep both online and offline selling at the same level. Only 9% said they would focus on physical selling or completely stop selling online.
Discounts and Customer Experience Will Be Important
According to the study, 51% of respondents intended to offer more discounts to customers, while 30% planned to keep discounts at the same level over the next six months. Only 8% planned to cut down on this strategy.
This is in line with the fact that 66% intended to focus more on customer experience (CX). Discounts are rarely considered CX tools. However, it can be used to reward and drive repeat sales from the businesses’ most valued customers. It just depends on the discount strategy.
Marketing Is the Driving Force and Not the Cost Center
During challenging times, it is often seen that marketing budgets are cut as it is considered a cost center. However, it was seen that 72% of retailers and online shop owners did not plan to cut their marketing budgets. Further, 28% of respondents planned to increase their marketing spends in the next six months. This shows that retailers are considering marketing a profit center rather than a cost center. Simultaneously, it is also possible that since most campaigns are online, businesses also trust online marketing more.
Email Marketing and Social Media Are the Key Strategies To Pursue
The study found that the top three marketing strategies for retailers in these times are email marketing, organic social media, and paid social media. Paid ads and SEO followed these strategies closely.
Retailer marketing strategies in the next six months
Source: GetResponse survey
This may indicate that retailers are focusing on strategies that allow them to build their own audiences while also planning to invest in paid advertising.
The situation is slightly different for the retailers who said their sales had increased in the last six months. The most popular strategies among this group were paid advertising (50%), email marketing (40%), and paid social media (37%). These were closely followed by organic media (35%) and TV/Radio (34%).
This may again indicate that retailers want to build their own audiences and also recognize email marketing and organic social as long-term strategies. Simultaneously, they want to invest in paid campaigns as they offer scalability and usually lead to instant conversions.
See more: 5 Reasons Retailers Are Failing in Their Loyalty Programs
Conclusion
Inflation worldwide is expected to stay high or increase in the next few months. According to Euromonitor’s report, global inflation is expected to hit 7.9% this year. And many retail businesses and consumers are already feeling the effect in the form of the price increase. However, all is not lost. Fortunately, retail companies are rethinking their strategies, focusing on marketing channels that help them build their audiences in the long-term while also focusing on those that provide instant returns. Simultaneously, many are also seeing CX as a critical factor to success. This is a positive practice that retail businesses should continue to follow in the long run.
How are your marketing strategies evolving in the face of inflation? Share with us on Facebook, Twitter, and LinkedIn.
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