nflation is on the rise globally. Higher prices are affecting almost all business sectors, leaving entrepreneurs with the question: how to cope with the new situation? In this article, we will shed some light on the e-commerce industry during inflation, and give some tips on how to maintain sales in the face of a financial crisis.
How did all this happen?
The current inflation is the result of many factors, but among the main causes, we will find a financial policy, the economic consequences of the coronavirus pandemic, and the crisis caused by the war in Ukraine. The economic downturn in many sectors, the problem with the availability of goods, and the suspension of trade with Russia have taken their toll on the global economic situation and presented businesses with new challenges and the need to change their growth strategies.
Keep calm and find a solution
In a crisis, any business must remain alert and composed. The instant reaction of many companies is to sharply raise prices and look for savings by stunting the company's growth, such as mass layoffs and cutting the marketing and technology budget. And this is a big mistake. Of course, such a strategy will bring almost immediate cost reductions, but it will turn against you very quickly as the brand in the form of a loss of market position. Even the most loyal customers will not stay with a store that no longer offers value for money. Also, despite inflation, the job market maintains stability; skilled professionals will quickly find new employment, while a company that has impulsively cut jobs may find itself facing staff shortages. Saving on marketing and technological development is also a very short-term solution because a crisis in the market does not mean that customers will stop buying. Instead, it means they will become more selective and cautious, and a company that doesn't invest in communication and improving the experience will simply lose out to its competitors. Responding to the effects of inflation should therefore not be dictated by panic, but by a thoughtful strategy.
E-commerce in the face of inflation
How does the e-commerce industry look in the face of inflation? For the time being - the number of new online stores continues to grow (KRS, 2022). Many companies produced their goods earlier when prices were not yet so drastically high, and today sell them at higher margins. Additionally, for consumers looking for the most attractive deals, online sales are a favorable alternative to offline retail.
The rise of e-commerce popularity
According to a report by the Chamber of Electronic Commerce, as many as 58% of respondents believe that e-commerce is a more attractive shopping channel than stationary sales, and even 31% of consumers intend to buy everything possible online due to the crisis.
Customers appreciate e-commerce for:
- greater product selection,
- better prices,
- more frequent promotions
- the ability to easily compare offers in different stores.
Although it is difficult to expect the e-commerce market to grow as rapidly as it did during the pandemic, there is no doubt that online sales will become an increasingly popular alternative to stationary shopping. However, this doesn’t mean that e-commerce will completely escape the effects of the crisis. Only 16% of Poles rate their financial situation as good or very good, and as many as 71% of those surveyed plan to optimize their household budget (e-Izba, 2022).
Optimization is more important than ever
Greater customer savings and increasing number of online shoppers will make the e-commerce market even more competitive. Businesses that have risen on the wave of pandemic market growth will have to make every effort to stay afloat. Searching for the best deals and experiences available may prove more important to consumers than brand loyalty, so optimization of the sales platform will be the cornerstone of maintaining a position.
How to maintain sales during inflation?
During inflation, price increases are unavoidable. On the other hand, you need to be very vigilant not to exceed the critical barrier that customers are ready to accept. A sharp increase in the entire assortment to maintain the same level of revenue may cause consumers to move elsewhere. It is worth paying attention to which products are the most key to the brand image and are most popular. In this case, be careful and increase the price gradually.
Economists also suggest grouping products with variable prices and deciding which ones to match the maximum with increases and which ones only partially, to keep the offer favorable to the customer. It is also crucial to know the psychological price barrier for certain products in a given target group. It's a good idea to use a research agency and have it conduct a consumer survey in the segment you're interested in to find out how much customers are willing to pay for specific items.
Promotions and combined offers
Despite inflation, customers will try to maintain the current standard of quality to which they have become accustomed, while they will wait for special bargains in search of savings. A laptop, a smartphone, a winter coat, boots, or new furniture for the living room - in most cases the purchase of these items can be put off, so customers will hunt for seasonal sales or discount codes.
Plan a schedule of promotions to celebrate changing collections, back to school, or Black Friday. It's also a good idea to offer customers sales directly related to your brand, such as a birthday or a day that contextually fits the industry (like a discount at a pet store for Dog Day). This way, you'll not only boost your company's image and brand awareness, but you'll also have less competition than during popular sale seasons. It's also a good idea to bet on cross-selling and combined offers, such as a ski suit bundled with a helmet at a better price. This will make your customers buy more while making them feel like they've caught a bargain.
E-commerce during inflation needs to run like clockwork, as customers will be more cautious in their purchasing decisions, and thus more critical and selective about the stores where they leave their money. A solid technology base will help you ride consumer expectations and thus increase sales.
PIM - in a period of high price volatility, you will certainly find it useful to have the support of a product information management system. This will make it easier and faster for your team to update assortment data, including pricing, by specific channel and marketplace.
ERP - your company's resource management tool will be helpful for budget planning, supply control, cost and capacity estimation. This is very important in a period of tight supplies and price increases from manufacturers.
Headless - looking to save money, customers will wait to buy for promotions and sales, so traffic during these periods may be even higher than before. The headless model will help you increase your store's efficiency and efficiently handle all orders at the time of the biggest sales peaks.
Composable Commerce - implementing this approach will increase the flexibility and expandability of your application, allowing you to react instantly to changing market conditions.
Analytical model - during the inflation, businesses need to be very alert to consumer behavior, so implementing an analytical system will be fundamental to maintaining sales.
Deferred payment methods
In the face of an inflationary crisis, customers will be particularly anxious to maintain liquidity, so if larger purchases exceed the budget, they are likely to abandon them. Well, unless they can break up the expense into convenient installments. According to PayPo data, just a few months after implementing deferred payment in the store, the average value of orders processed through it increases by 20-40%. Moreover, thanks to deferred payment, customers are more willing to experiment with the assortment and order even those items they are not sure about. After all, it is much easier to decide to make a purchase knowing that the funds won’t be frozen in the store's account until the return procedure is finalized. This is especially important in online retail when the customer cannot see the goods with their own eyes. The option to pay for purchases 30 or even 60 days after purchase in several installments is being implemented by more and more companies and allows them to maintain sales even in times of crisis.
Subscription is mainly associated with digital services, such as an account on Netflix or Spotify, meanwhile, its popularity is also growing in the context of physical products. And this trend will only get stronger. In times of inflation, when customers are carefully budgeting and want to avoid unforeseen expenses, the subscription model will be a hit. Products purchased regularly, such as vegetables, coffee, tea, supplements, or cosmetics, give stores tremendous leeway to create attractive offers in the subscription model. For the retailer, it's a great opportunity to show customers new products in the assortment, increase their brand loyalty and generate more stable revenues. Customers, on the other hand, will appreciate the transparency of spending when planning their budgets, when they are assured that their favorite online grocer will provide them with a package of fresh produce every two weeks at a fixed price.
In the face of a potential crisis, when you have to juggle pricing policies, compete with competitors and fight for your audience's attention, you're bound to wonder if this is the best time to invest in UX. The answer is - definitely yes. We won't go into a lot of detail here about why UX is important in an online store, although if this issue interests you, we have described it in detail in this article. Instead, we will focus on two key arguments.
The first is consumer behavior. In times of inflation, every customer will think twice about whether he is sure he wants to and should make a purchase. On the one hand, he has promised himself savings and no unplanned expenses. On the other hand, he has just flashed his dream pair of shoes in an ad on Instagram, which happens to be discounted. He immediately clicks, of course, just to take a look. But the shoes are available in his size. And it's the last pair. After fighting with himself for a while, he adds the product to his shopping cart. It might seem that at this stage the purchase is practically finalized, but this is just a pretense. It is at this point that the most sensitive point of the sale occurs, and any "clamor" in the purchase path can weigh on the decision-making process. Every additional action the customer has to perform, such as creating an account, signing up for a newsletter, entering the address information, and clicking through checkout pages lengthens the path from adding the product to the shopping cart to the final in the form of payment. And the more time a customer spends on this path, the more his or her initial enthusiasm cools down, turning into a cold calculation. And that's when, at the decisive moment, the user, in heartache, closes the store's website. The main goal of good UX is precisely to eliminate all such guffaws and to simplify the purchase path as much as possible, so as not to provoke moments of hesitation and irritation in the customer.
The second argument is competitiveness. According to EY, 52% of consumers consider price to be the most important purchase criterion and 42% of those surveyed say they will only buy products from a brand whose values they identify with and which offers them an impeccable consumer experience. So if you're not able to offer your customers the best price on the market, UX is one of the most important criteria to set you apart from the competition.
An effective website
Advertisers' per-click rates are constantly increasing, and you can sink very large sums of money in ineffective campaigns on Google or Instagram. It is therefore important to maximize the conversion rate. And this is facilitated by a well-designed storefront. Attractive design, information about promotions, advanced personalization, recommended products, rich product pages - each of these elements helps your store sell better and more effectively.
E-commerce during inflation needs to bet on building relationships more strongly than ever. Customers will be more selective about where they shop, so simply liking a brand is not enough. Give your audience real value for coming back to you. Create attractive loyalty programs and promotions just for regular customers, so you can show them that building lasting relationships is worthwhile for them.
Online stores will have to compete even harder for customers' attention, so marketing will play first fiddle. Take care of visibility - use the potential of your social media and make sure your site has good SEO. Take into account that customers will now do better pre-purchase research to choose the most favorable option, so make sure your products are available in the summaries of price comparison sites. Product rankings and expert articles, such as the best smartphones in a given quarter, available on your blog and a reviews section on product pages are also great tools you can use.
Marketplaces will become more important as a result of inflation. Customers who will care about getting the best possible deal will find there the largest selection of products with price comparisons, extensive filtering capabilities, and a cross-section of assortments from different brands. What's more, a presence in a large marketplace is a chance to increase brand awareness and reach a group of new customers, and this is especially important in a period of rising advertising rates.
There's no situation without a way out
Inflation is always a period of crisis and market fluctuations, but this does not mean that trade will stop. Customers will continue to buy and stores will continue to sell, even if the accompanying conditions change. The cornerstone of any functioning business is the ability to adapt to these changes and implement a strategy to stay afloat in the rough sea of business.
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