Tackling the Inevitable Inflation from the Holiday Supply Chain Shortage

The COVID-19 pandemic has devastated communities and economies alike around the world. We are still learning the long-term implications of the shift to a more remote, digital world. These overnight, drastic shifts caused production delays and issues in the supply chain with ripple effects to the global economy.

Supply chain woes

Previously, we’ve discussed the causes for the supply chain slowdown and shipping delays and how companies can work around them. However, disruptions in the supply chain are only the beginning. The world has worried about inflation from the start of the pandemic, and it’s finally here.

Inflation is dramatically affecting companies’ gross margins and their profitability. However, if you know how profitable your customers will be throughout the duration of your relationship, you can more intelligently determine how to tackle the problem of inflation.

To raise prices or not to raise prices

Often, a company’s first concern is how to adjust their prices to match what’s going on in the market. In a time of high demand and low or disrupted supply due to bigger supply chain issues, this is especially true. This holiday season, Salesforce projects a 20% increase in prices for consumers as businesses struggle to overcome inevitable shortages.

For some businesses, raising prices has been just what the economic doctor ordered. In June 2021, Chipotle announced a 4% increase in their prices to help counteract the rising costs of freight and beef. In turn, Chipotle had an incredible third quarter, more than doubling their year-over-year net income for Q3.

Raising your prices in order to maintain your gross margin is only one way to battle inflation. Businesses adjust their prices all the time; under the air cover of inflation, now is technically the perfect time to raise the price of your product. Before doing so, however, it’s important to question whether or not this is the right decision in the long run for your business and for your customers. To put it simply, should you raise your prices now, or can your business afford to wait it out based on the estimated profitability of your customers?

The current rate of inflation, in addition to supply chain shortages and shipping delays around the world, is predicted to stick around through early 2022. Knowing the profitability of your customers is crucial to your businesses’ long-term success and to its survival during economic uncertainty. Each of your customers has an estimated value to your business throughout the duration of your relationship. This estimated value, or Customer Lifetime Value, can be used to help make informed business decisions leveraging your customers’ overall profitability.

Customer Lifetime Value, or CLV, is the metric that estimates a given customer’s value throughout the duration of your relationship. This includes the customer’s loyalty to your brand, whether or not they rely on discounts or special offers to convert, and how they interact with your product. This data can help to inform crucial business decisions and which audiences should be prioritized in your marketing strategy.

Your most valuable customers are your most loyal customers. This group converts regardless of discounts or special offers and makes regular purchases from your business. Because this group of customers is reliable, loyal, and predictable, they should be your top priority in your marketing strategy. Don’t get lulled into a false sense of security thinking this group will stick around forever – they may not. Prioritizing them in your marketing campaigns using CLV will ensure that your brand stays top of mind and that they continue to come back and convert.

Prioritize loyal customers

The COVID-19 pandemic and its far-reaching ripple effects are unpredictable, but your customers’ buying behaviors are not. CLV is the key to optimizing your marketing, sales, and retention efforts during the holiday season and beyond.

Retina’s CLV Academy provides everything you need to know about CLV, from how to calculate it to how to leverage it in your business. For more information on how CLV can transform your business, talk to one of our experts today.