Skip to Main Content

Post-inflation Strategies: Four Ways to Leverage Promotions When Prices Begin Falling

Without question, it’s far too early to try to predict when this long stretch of historic inflation may finally come to an end, but there are at least some signs indicating that inflation rates may have finally peaked. In the US, the core inflation rate (the rate central banks use to determine monetary policy) held steady at 5.9% in both June and July after reaching 6.5% in March. The UK has yet to see the same decline in the core inflation rate, but the sharp spikes of the past 18 months have at least flattened somewhat. 

Given these tenuous but mildly encouraging signs, it seems like now might be a good time to consider how we might adapt our promotion strategies should inflation actually begin to decline.

Many would suggest that as inflation wanes, so should our promotional investments. And that approach certainly has its merits. However, there are also valid reasons to consider staying aggressive with promotions even while inflation begins to fade. At XC Commerce, we have seen several clients implement promotions designed to take advantage of some of the unique strategic opportunities that present themselves when inflationary pressures begin began to fade. 

Here are four of the most significant benefits we have seen our clients achieve by investing in aggressive – but strategic – promotions during periods of declining inflation:

  1. Improved price perception versus the competition
    Price perception is often one of the most significant determinants of where people choose to shop, and unfortunately, “perception is reality” is never truer when applied to shoppers’ price perceptions. And once those price perceptions have been formed, they can be extremely difficult to change. However, periods when inflation begins to fade represent a rare opportunity to actually influence price perception.

    During times of declining inflation, many retailers assume consumers will respond to prices that are reduced as costs go down. As such, they often try to take advantage of these conditions and reduce their promotion investments. This creates an ideal opportunity for savvy retailers willing to increase their promotion budgets. We have seen many clients do exactly that, and in so doing they were able to stand apart from their competition and wield meaningful influence over those stubborn price perceptions. 
  2. Increased product experimentation
    When prices begin to fall, many people have more room in their budgets to try products that may have previously been out of reach. This is often a great time to deploy creative promotions that encourage product experimentation.

    We have seen our clients have success with promotional strategies that encourage product experimentations by mimicking new product promotions. “Introductory” offers like reduced-price bundles, vouchers/coupons, buy-one-get-one offers and bonus loyalty point incentives are all proven methods for encouraging shoppers to try products that are new to them, even if they are not new to the product range. Exclusive product previews or in-store events for loyalty members can also encourage product trials (and often times word of mouth as well, if they are executed effectively).
  3. Increased (and reinforced) advantageous shopping behaviors
    This may also be an ideal time to begin incentivizing shopping behaviors that help lead to higher sales and better margins. Whether encouraging shoppers to pick up their online orders in the store, or to consolidate their orders into fewer shipments, promotions have a long track record of successfully influencing shopper behaviors. And quite often those new behaviors stick around long after the promotions have ended.

    Investing in these offers at a time when many competitors are spending less on promotions can have positive short- and long-term impacts on financial performance.
  4. Increased consumer loyalty
    When inflation does begin to ease, retailers can leverage promotions to help ensure that they retain their existing customers’ loyalty, as opposed to taking the opportunity to start to look around. Promotions that are driven towards those customer segments can help assure them that you are delivering value, capture more of their tentative returning spend, and lead to a more profitable relationship as the good times return.

    Additionally, getting creative with promotions when prices are falling can uncover opportunities to “surprise and delight” shoppers in ways that aren’t as easy during inflationary periods, when most consumers are primarily focused on finding ways to fit all the essentials into their baskets. When shoppers have a little more breathing room in their budgets, they may be willing to embrace new options, new services and new experiences. And that’s our opportunity to deliver interactions and experiences that surprise and delight them which typically (and most importantly), help build loyalty.

Is inflation really (finally) beginning to fade? I’m not willing to make that bet just yet. But I am willing to bet that those who plan – and budget – for creative promotion strategies to deploy when inflation does truly begin to wane will be those that realize the types of benefits we have seen over the years from some of our most savvy clients.

Here’s hoping that inflation does begin to ease up soon, and that your promotion strategies will be in place to help you take advantage of the new opportunities that falling inflation will present.