Simplifying Decision Making in an Inflationary Environment
- With inflation hitting new highs in the UK, Eurozone and the US, retailers and suppliers are having to deal with unfamiliar pressures with little, or no, first-hand experience. The same is true of consumers.
- At Prisma we have over 5 years of experience working in high-inflation environments with clients across Latin America, and have first-hand insights in how to mitigate pressures on margins and maximise sales.
What have we learnt:
- Inflation significantly changes patterns of consumption.
- Inflation has both a macro economic effect and micro effect at the product level. These are not the same, and inflation needs to be considered differently at different levels of granularity.
- Factors such as price elasticities change but not necessarily in proportion to changes in consumption or uniformly.
- Consumer behaviour may change, bringing in new clients and buying habits, but it can be predicted.
- Good forecasting is crucial to successful decision making.
- Strategic inputs should be revised to ensure systems are aligned to the new environment.
Where traditional tools and processes can break down
- Poor decision making will result from modelling that fails to incorporate inflation properly, or relies too heavily on single variables that do not behave “as normal”. For example:
- Not incorporating inflation properly into forecasting.
- Not applying deflectors to the variables that feed modelling.
- Applying a one size fits all approach rather than looking at the differing effects at a more granular level.
- Assuming that variables such as elasticities will behave as normal.
- Normal customer price perception breaks down (see below).
How Prisma can help with inflation and offer competitive advantage
- Our data science team has a wealth of experience guiding clients within an inflationary environment and uses that knowledge to build inflation into your forecasts.
- We use inflation deflectors within our modelling that are applied to individual variables to recommend decisions.
- We focus at the product level, calculating variables for individual items, rather than at a macro level.
- Our business rules can be quickly adapted to provide a unified approach to pricing, assortment and promotions and avoid conflicting decision making.
- An observation on Price Perception
- In high inflationary contexts, customers' price perceptions become less accurate, as the customer is required to update the perceived price in their mind more frequently. In a survey that we carried out for a client in a chain of Convenience Stores, we saw how the price perception of certain products was high. We also asked which was the reference store for comparison; when we visited those stores, we observed that the perception was wrong.
- 1. Segment Known Value Items and work with competitive positioning by Trade Area.
- 2. Establish relationship rules between the KVIs and the rest of the products.
- 3. Increase the frequency of KVI surveys.
- 4. Combine with margin guidelines as cost increases may precede price updates in the Trade Area.
- 5. All these actions can be configured in your software to achieve greater automation in the price change process, considering the variables mentioned in inflationary contexts, thus improving the profitability of the stores and the perception of prices.
You may also be
Why do some promotions have no impact on sales?
Has your company ever run a promotional campaign, only to find that, after months of planning, the display materials have been placed incorrectly, in the wrong spot, with the wrong product or there is overlap between promotions?
How to use AI to optimize your article master?
In the following blog post, we will analyze the use of artificial intelligence to optimize product classification in the retail industry.
Planograms: the importance of Retail Space Planning
In the following blog post, we will discuss the role of planograms in retail space optimization.
How Data Science and AI are transforming Supermarkets
In the following Blog post we will discuss how Data Science and Artificial Intelligence are transforming the consumer shopping experience and supermarket operations.
Top 5 AI algorithms applied in retail
In the following Blog post we will analyze what Data Science is and what are the Top 5 algorithms applied in retail today.
Are dark stores the future of retail?
In the United States, as a result of the pandemic, retailers were forced to expand their business through ecommerce, increasing the trend towards the creation of 'Dark Stores'.
The 4 omnichannel challenges that retailers must solve
The current pandemic has retailers looking for investments to deliver an efficient omnichannel experience.
How to extract the most value from your retail data
Nowadays, companies have a countless amount of data to process, both internal and external. The secret lies in analyzing the data correctly and making the right business decisions.
Goodbye 2020: top 5 lessons you leave behind.
2020 has been a difficult year full of challenges for everyone. But it has left behind a series of learnings that every retail company should consider adding to 2021 strategic planning.
Is your pricing strategy not working? These could be the 4 reasons
Choosing a pricing strategy is one of the biggest challenges for any business, as it is the result of complex calculations, research, understanding, and the ability to take risks.
Leading Colombian pharmacy chain implements Pricing and Space Planning modules
One of the leading pharmacy chains in Colombia, owning 960 stores nationwide and selling more than 20,000 products, pursued a digital transformation that would allow coping with typical retail problems and increasing its profitability.
Common Retail Tech implementation objections
Let’s face it, all companies need to transform themselves in some part of their life cycle, however this doesn’t mean that implementing a new software or a new process should be easy.
Micaela M. Kulesz
Let's buy it all NOW!
Fights, despair, anxiety, and many other emotions are being exposed in retail stores nowadays. We all have seen images and videos of consumers stocking (or stalking?) toilet paper and other goods in most countries hit by the COVID-19, suggesting the apocalypse of basic goods.
Micaela M. Kulesz
“Canastas de Alimentos” : listas para comprar en un solo click
Con el comienzo de la cuarentena sobrevinieron importantes cambios de hábitos en el comportamiento del consumidor. La principal tendencia observable, es la manera en que el comercio online fue ganando terreno por sobre las tiendas físicas.
Price Perceptions, Consumer Choices and the Compromise Effect
António Damásio, in his book “Descartes' Error,” states that emotions both guide and bias behavior and decision-making. One of the examples he uses is called the Compromise Eﬀect, a behavioral phenomenon by which customers often choose the mid-priced option to protect themselves from making a bad choice.