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April 13, 2024: What managers should do in an era of cost-push inflation
It is said that we are now in an era of cost-push inflation. Prices of fuel, food, raw materials, etc. are rising. Increases in purchasing prices, utility costs, and transportation costs put pressure on management. In addition, rising prices of daily necessities will put pressure on workers' livelihoods, putting pressure on companies to raise wages. In addition, corporate labor costs are on the rise due to serious labor shortages, wage increases at major companies, and the need to improve treatment of non-regular employees due to the enactment of equal pay for equal work legislation. In order to improve management under these circumstances, there are limits to cost reviews and restructuring alone. In order for companies to maintain profits, they must not only improve costs, but also consider ways to effectively pass on increased costs to prices. Let's consider what managers should do in an era of cost-push inflation.
April 13, 2024: What managers should do in an era of cost-push inflation
Business owners should review the costs of products and services from the customer's perspective. When reviewing a product or service, we often tend to start with changes that are increasing in cost. However, if you cut out high-cost parts without looking at the product from the customer's perspective, the quality of the product and service satisfaction will decline, and there is a risk that customers will leave. When reviewing the costs of products and services, it is important to review them from the customer's perspective. Even if it is a costly part that you would like to reduce, if it is an important part from the customer's perspective, it is risky to reduce it too easily. Cost cutting is important for securing profits. That is why it is important to review costs from the customer's perspective in order to avoid failure.
Let's create a new brand. Or renew your brand. If the cost goes up and you are no longer making a profit, you will need to raise prices to maintain profit. However, simply saying "we have raised prices" will give a bad impression to customers. By creating a new brand or renewing your brand, you can give your customers the impression that you are not just raising prices. The point is to upgrade the brand to something more luxurious. Since we are going to raise prices, it is important to upgrade to a brand that has a more luxurious feel and is more satisfying than before.
Let's move forward with in-house production of things that can be done in-house. Choose suppliers that are close to you rather than those that are far away. In an era of cost-push inflation, suppliers raise prices, and logistics costs become a major factor that puts pressure on profits. From the perspective of risk diversification, it is important to be prepared to switch to in-house production at any time if the supplier's price increases are significant. It is also important to take steps to shorten the distance in the supply chain to avoid increasing logistics costs too much.
Develop downgrade products and services. Or develop an upgraded product or service. When raising prices on current products, take measures to prevent customers from losing customers due to price increases. Developing downgraded products and services is considered an effective way to reduce customer defection due to price increases. Conversely, it may also be effective to develop upgraded products and services targeting high-end customers. People who previously purchased other companies' more expensive products and services may become your customers.
Focus on creating a story that will get your customers to buy. Why do customers buy your product or service? What is the purpose, what do customers want, and how do they feel when they choose a product or service? If you can create a story that encourages customers to buy, it will be easier for them to buy. Since we are raising the prices of products and services, we need a story that makes people want to buy more than ever.
The era of cost-push inflation can be said to be a time when the ingenuity of business managers is put to the test. Managers should borrow the wisdom of those around them and devise ways to reduce costs and pass on the costs.
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