The National Bureau of Statistics (NBS) says Nigeria’s headline inflation rate increased to 22.22 per cent on a year-on-year basis in April 2023. According to the report, the figure is 0.18 per cent points higher compared to the 22.04 per cent recorded in March 2023. It said on a year-on-year basis, the headline inflation rate in March 2023 was 5.40 per cent higher than the rate recorded in April 2022 at 16.82 per cent. This has worsened following the removal of the fuel subsidy earlier this month.
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Studies have shown that inflation is an economic phenomenon that affects the purchasing power of currency and the overall cost of goods and services. Hence, business owners face unique challenges during periods of high inflation, as it can impact their profitability, pricing strategies, and financial stability. “What inflation points out is that the customer’s capacity to pay is lower than before. And if a business wants to deliver value to that same customer when their wallet is shrinking, it has to step up by knowing how to do things differently,” Uchenna Uzo, a consumer expert and faculty director at the Lagos Business School (LBS), said. This essay explores effective coping strategies for business owners to navigate the challenges posed by present inflation and ensure the long-term sustainability of their ventures.
Reassessing Pricing Strategies
Inflation often leads to increased costs of raw materials, transportation, and labour. To cope with rising expenses, business owners should periodically reassess their pricing strategies. It may be necessary to adjust prices to reflect the increased costs and maintain profit margins. However, it is crucial to strike a balance between passing on the increased costs to customers and remaining competitive in the market.
For instance, a restaurant owner may analyze their menu pricing and explore alternative ingredient options that are more cost-effective without compromising on quality. They may also consider implementing dynamic pricing strategies, offering specials during off-peak hours, or introducing value-added services to maintain customer loyalty.
Strengthening Supplier Relationships
During times of inflation, the prices of goods and services can fluctuate rapidly. Business owners should focus on building and strengthening relationships with their suppliers. Open communication, long-term contracts, and exploring bulk purchasing options can help negotiate better deals and mitigate price increases.
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For example, a retail store owner may collaborate closely with suppliers to secure favourable terms and lock in prices for essential products. By fostering strong partnerships, business owners can create a win-win situation where both parties benefit from stable pricing structures.
Streamlining Operations and Cost-cutting
To combat the effects of inflation, business owners should examine their operations to identify areas where costs can be reduced without compromising quality or customer satisfaction. This may involve analyzing supply chains, optimizing inventory management, and seeking more cost-effective alternatives.
A manufacturing company, for instance, might implement lean manufacturing principles to reduce waste and increase efficiency. By streamlining processes, they can cut unnecessary expenses and improve their overall competitiveness.
Diversifying Product or Service Offerings
Inflation can impact consumer purchasing power and shift their preferences towards more affordable options. Business owners can respond to these changing dynamics by diversifying their product or service offerings to cater to a broader range of customer needs and budgets.
A software development company, for example, might introduce different pricing tiers for their products, including lower-cost options with reduced features. By diversifying their offerings, they can tap into new customer segments and maintain revenue streams even during periods of economic uncertainty.
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Inflation presents challenges for business owners, but with proactive strategies and adaptability, they can navigate these difficult times. By reassessing pricing strategies, strengthening supplier relationships, streamlining operations, and diversifying offerings, business owners can mitigate the impact of inflation on their bottom line. It is crucial to remain agile and responsive to market changes, seeking opportunities for growth and innovation amidst challenging economic conditions. By employing these coping mechanisms, business owners can ensure the resilience and long-term success of their ventures.
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This article was first published on 30th June 2023