Inflation to value creation – A new outlook on navigating inflation with strategic moves

Gauging the trend from the last two quarters, inflation for most consumer durables has reached the cautionary mark, impacting consumption across rural and urban geographies.

Inflation to value creation – A new outlook on navigating inflation with strategic moves
The consumer price index (CPI) inflation for March 2022 stood at 6.95%

By Paramdeep Singh Anand

For a consumption-led economy like India, persistent price-rise due to inflation is deemed to become a cause of caution. When we say, the cost of a glucose biscuit packet has risen from Rs.10 to Rs.11, people in the majority of cases would choose to ignore and still buy it, even though it is a good 10% rise. But when a different daily consumable priced ten-times higher spikes in price by 35-50% over a short period of time, as witnessed in the case of edible oils, the same consumer would not only pay attention but consume with caution.

Gauging the trend from the last two quarters, inflation for most consumer durables has reached the cautionary mark, impacting consumption across rural and urban geographies. Many believe this rise will continue for the next three to four quarters. This constant elevation would most likely transition from a cause of caution to a cause of worry, not only for households but companies as well.

In the second and third month of 2022, the headline retail inflation breached the upper tolerance level of 6% set by RBI. The consumer price index (CPI) inflation for March 2022 stood at 6.95%. If that sounds alarming, consider this- inflation in the USA stood at 8.5% in the same month. All owing to the ongoing war, a spike in fuel prices, and the growing supply-chain costs. As an outcome, most consumer companies are now dwindling in the trilemma of raising prices and upsetting customers; cutting margins and upsetting investors; or simply cutting corners and upsetting both. For the majority of companies, the most feasible and manageable solution implemented will be increasing prices or reducing grams. But there are more strategic, smarter ways of mitigating the complication.

It is time to look at the broader picture and come out of the 1970s stagflation-born short-sighted strategies. Because now, decision-makers in most companies are equipped with technology, insights, and wider scope to take risks. There is better market visibility due to digitization, and higher agility backed by sophisticated tools. They are smartly equipped for shifting focus from what they should charge their customers to what they should charge them for and why. All to make strategic moves that lead to reduced costs and more scalable growth. There are three strategic solutions decision-makers can consider.

Relook the Product Mix

Demands, needs and capacity, at various scales, are shifting in the market. Most consumers, in the light of pandemic, great resignation, rising inflation and other reasons are subconsciously searching for more profitable offerings. To meet consumers halfway, brands can consider bundling or unbundling the products. This will lead to new value propositions
for consumers or introduce them to lower prices for segregated products that they wish to buy.

If the capacities allow, brands can even opt to introduce alternatives that are lesser in price than the existing ones. Another possibility is offering strong propositions to consumers with premium products since the market makes up a substantial portion of consumers who are willing to pay a premium provided the value for the buck justifies it.

Balancing Price with Marketing-Mix

In every product-mix, some products bear a higher offer price, while others have a lower one with respect to the value they deliver. Brands can take these waves of inflation as opportunities to balance the underpriced and overpriced curve, and align right positions to their products. To exemplify, consider a product that has been receiving substantial marketing budgets for the last three years in order to improve its competitive edge and attain more sales. Now with evolving market needs and rising inflation, opportunity lies better in reducing offer price and cost of marketing the product, rather than funding riskier expenditures on promoting it. Once implemented, it may render better positioning with a competitive edge in price and even deliver higher profits, depending on the magnitude. The marketing costs saved therein can be applied to balance the cost of other, underpriced products.

Some food brands have already optimized their marketing expenditure, and are making smarter, more specific investments. By increasing their spending on digital channels they are leveraging a better position to track and measure performance, all the while filtering investments that are yielding results with the ones that are not. Interestingly, in light of
inflation and rising costs, these brands have been gaining an edge with better negotiations leading to a stronger foothold in front of inflation.

Automating and Leveraging Cost-Efficient Solutions

Everyday, brands send tens, hundreds or thousands of their salesmen to cover various beats in the market, meet retailers in person and take orders. With technology, companies can optimize the beats covered by their salesmen, and further, make them more efficient with ready insights on active, minimally active and dormant outlets. Taking a leap further from beat optimization, companies can focus on service optimization for these various categories of retail outlets, bringing them most effective offers, schemes and products for their specific geographies. Service optimization and efficiency enhancement can be extended to the distributor segment as well. For one, technology can aid faster claims processing, reducing the time multifold for distributors. This will leave distributors with more funds to raise orders and sell them in the market. Pilferation of schemes can be minimized by capturing disbursement with technology in real-time. Additionally, wastage in expired products can be reduced by enabling FIFO (first-in first-out) with respective data captured and processed at the right time.

In a competitive, unpredictable and constantly changing market riding the high waves of inflation, only defense would not do. It is playing both offense and defense in a disruptive environment that would create value and help brands make it through the volatile ends.

(The author is CEO, Field Assist. Views expressed are personal and not necessarily that of Financial

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First published on: 08-06-2022 at 14:22 IST