Lets face it, It has been a challenging time for businesses. First the pandemic created major changes in commerce, shortly followed by the war in Ukraine bringing upon us a cost-of-living crisis. Now, the inflation has been rising ever since with the European Union reporting it at 9.8% in July of 2022.
As operations become more costly for businesses, it becomes crucial to strategise or otherwise run the risk of going out of business in the worst-case-scenario. With this tough situation upon us, D2C brands are asking the questions:
How do we deal with this?
What is the first step we should take?
What should we change?
The businesses that are the smartest and the most agile during this time, will come out on top. So how should a D2C brand react to inflation?
Here are our 4 strategies to implement
“It has been a quick turn from nice to do matters, to absolute must matters. You need to concentrate on the topics that matter the most.” -Mikko Rekola
1. Focus on the CORE of your business.
Now is the time to really go back to the basics. What is the most valuable for your customers currently? Anything extra that is not directly solving your customers key issues can be too costly right now. Therefore, it is highly important that you have direct communication with your customers and understand what they need, and then be able to deliver that to them in the most efficient way possible. D2C brands are already familiar with the importance of having a strong brand and a loyal community around that brand, but right now it is absolutely essential. You have to be top-of-mind, so anything you can do to increase your brand awareness and marketing efforts is highly recommended.
2. Don't be afraid of raising the prices.
Brands can feel overwhelmed by the decision to raise prices. Should we be more price-driven? If we raise them too much, will we lose our customers? These are all valid concerns to be raised. When it comes to pricing it is important to analyse how your pricing models are built and what are the different price points across different markets. There are data platforms such as Ellis, that can help with analysing pricing changes and help to see what sort of adjustments should be made.
The simple answer is: If your production costs are sky-rocketing, you need to raise your prices. Yes, customers might look for cheaper options but your competition is likely to be raising their prices as well, and as we mentioned before if you have a strong community - they will stick around. Additionally, you could offer them some extra value to reward customers for their loyalty.
We recommend you do A/B testing with pricing and run different campaigns to scope out what works best for the industry you are in and to remain transparent with your customers.
3. Stay on top of your data
With constant change happening, businesses need to be able to react and adjust with a much quicker pace than ever before. This can only be done when you have quality first-party data that can assist in showing you which products or customer segments are bringing you the most profit. Once you are able to see which products are performing well and which ones are not, you can divide them into A, B, C categories. With this so-called segmentation of products, once you do restocking you are able to get rid of the C or B category items, if they are not making you enough money.
Similarly, you have to be on track with what is happening with your customer segments and understand how different customers' behaviour is changing. Once you have a clear picture of your different customer segments, you will have different customer retention strategies in place for each segment.
If you do not have the capabilities to understand your data well enough, you need experts who can provide you with those valuable insights.
“All D2C brands should be much more reactive and have the capacity to change their operations in the market situation” - Mikko Rekola
4. Rethink free shipping
For many brands, especially in specific industries, offering free shipping has been an alluring factor for their customers. However, with the rising logistics costs as well as environmental concerns, free shipping might no longer be a viable option in the future and many brands are starting to move away from it.
We recommend you analyse your shipping data and do A/B testing to gain a better understanding of what options you should consider. Especially as consumers are increasingly looking into more sustainable options when it comes to shipping and things like pick-up options are becoming more widely available, you might find that free shipping is no longer a must-have. Shipping costs should be adjusted if you run the risk of losing margins due to you offering free shipping.
As a summary
Remain strong in your business values, increase the communication with your customers, understand their needs thoroughly and analyse closely the change in their behaviours. Perform lots of testing around pricing, logistics, and shipping to see which adjustments are best for your business. As a final note, remember that this is not the end. Inflation is inevitable and something that happens in the market. A crisis can also be a window for something better for the future. As always, being alert and having the capabilities to make quick adjustments will allow for you to flourish even during these uncertain times.
“Strong brands that are data-driven, that are responsible, that communicate well one-to-one with the customers will survive.” - Mikko Rekola
Written by Jacinda Vuorinen
Listen to the podcast episode on this topic.