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Doing business in Nigeria comes with a lot of challenges, especially from the policies of the government. Most businesses become casualties of wrong policies. Some of these policies are economically inclined and therefore, inflation might erupt which can affect businesses. 
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According to Investopedia, inflation is a measure of the rate of rising prices of goods and services in an economy. Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages. An explosion in demand for products and services can cause inflation as consumers are willing to pay more for the product. Therefore, this can also affect the demand of price negatively. Imagine buying a product for the sum of N50 two days ago only for it to be sold for the sum of N100 today. How do you go about this? This article will highlight four inflation strategies, businesses should adopt if they want to thrive.
  1. Formulate Inflation Viewpoint.
The first thing businesses must do is to study inflation by forming their viewpoint of inflation and how it can affect their business. They can do this by interviewing their customers and industry experts. Some of these questions should include:
  • What are your optimistic and pessimistic perspectives concerning the increase in prices of goods and services? 
  • What are the most crucial elements propelling the increase in consumer and wholesale prices?
  • How long will the prices either increase or decrease in the next five years?
  • How will Federal Economic Team respond to this scenario of inflation?
  • How much are suppliers likely to increase the price of inputs to your business?
  • How much salary is likely to increase across the industry to retain talent?
These questions will better give you a scenario in which you can coordinate your business amid inflation. This will give you the capacity to forecast the next five years so that you can act accordingly without shaking up the mode of operations.
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  1. Evaluate Consumer Sentiments To Price Increases.
Evaluating customers’ sensitivity to price increase will give you the needed information to know how to determine new pricing in the face of inflation. Their sensitivity will tell you whether to increase or maintain flat prices. To find out, a business can employ an independent analyst to answer questions such as:
  • How crucial is the lowest price to the customer’s decision to purchase from your company or a competitor?
  • How does the company’s current price compare to that of your competitors?
  • At what percentage are competitors increasing their prices?
  • Are customers shifting their business to the lowest priced suppliers?
If this research shows that your customers are highly price-sensitive, you should consider keeping your price below those of competitors. If customers are not price-sensitive and rivals are increasing their prices, you should contemplate whether to increase your prices as much or more than competitors. 
  1. Forecast Percentage Of Increase In Key Costs.
In the face of inflation, business leaders must study key areas of increase, especially in the area of supplies. To understand the increases, businesses should study the increase rate of key suppliers. Below are questions businesses should analyze:
  • What are your company’s largest input costs?
  • At what percentage are key suppliers likely to increase the prices they charge you?
  • Are there lower-cost suppliers for those inputs who are likely to remain lower-cost?
  • How tough would it be for you to switch to those suppliers?
If your suppliers are likely to increase prices to the same level as competitors, you should not switch. However, if credible suppliers will charge you less than their competitors and your switching cost is low, consider moving your business.
  1. Study Competitors’ Inflation Strategies.
Before developing your company’s inflation strategy, it is advisable to know what your competitors are doing concerning inflation and what they are likely to do in the next five years. Therefore, carrying out an investigation would be crucial at this point and a few questions such as these should be looked into.
  • What is the percentage increase of competitors increase in price?
  • Are their customers switching suppliers in response to the price increases?
  • What is my competitors’ percentage increase in their salary to retain talents?
  • Are competitors switching suppliers to lower their input costs?
  • What might cause them to overturn these strategies?
These questions and the answers they produce will give you the necessary information on how to maintain your competitive advantage. Featured image source: Dataphyte
Did you find this article useful? Contact us: editor@connectnigeria.com
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This article was first published on 11th February 2022

nnaemeka-emmanuel

Nnaemeka is an academic scholar with a degree in History and International Studies from the University of Nigeria, Nsukka. He is also a creative writer, content creator, storyteller, and social analyst.

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