Retail, CPG and Logistics

Rising retail pricing pressures demand stronger cost-reduction strategies

In today’s fast-paced retail world, pricing strategies in retail are more than just numbers—they are strategic tools that shape consumer behaviour, drive profitability, and define market positioning. However, maintaining competitiveness while safeguarding profit margins has never been more challenging, especially amid rising inflation, fluctuating commodity prices, and labour shortages.

To remain competitive, retailers must move beyond basic price adjustments. Research suggests that reducing the cost base by at least 20% is crucial for long-term competitiveness. While cost-cutting strategies are common, they alone are not enough for the long term.

Apart from pricing pressures, retailers must also align their operations with environmental and social values, adding another layer of complexity to cost management. Striking the right balance requires strategic cost-reduction measures that enhance operational efficiency without compromising the customer experience.

Key challenges affecting retail profit margins

Retailers are facing multiple challenges that are affecting their profit margins. Here are some of the key challenges:

Inflation

Rising inflation is increasing operational costs and reshaping consumer spending habits. As prices rise, consumer purchasing power declines, making it difficult for retailers to maintain competitive pricing while protecting their retail profit margins.

Labour shortages

Persistent labour shortages are forcing retailers to operate with smaller teams. This often results in inefficient store management, longer wait times, and poor customer experience, all of which negatively impact customer satisfaction. Additionally, to attract and retain workers, retailers are being compelled to offer higher wages, further increasing operational costs and squeezing profit margins.

Fluctuating commodity prices

Managing unpredictable commodity price fluctuations is challenging for retailers. These fluctuations can be caused by supply chain disruptions, global political events, or shifts in consumer demand. As a result, retailers must choose between absorbing the higher costs, which reduces their retail profit margins, or passing the costs on to customers, which could lead to losing business.

Effective cost-reduction strategies for retailers

To safeguard profit margins and drive growth, retailers should focus on the following strategies:

Leveraging technology

Embracing modern technologies enables retailers to reduce costs and enhance operational efficiency. Retailers that fail to embrace digital solutions risk financial losses. Tools such as point-of-sale (POS) systems, inventory management software, and customer relationship management (CRM) platforms help to streamline operations and improve efficiency. AI-powered chatbots further enhance customer service by providing 24/7 support, reducing response times, and improving customer satisfaction.

By integrating these technologies, retailers can boost productivity, improve customer satisfaction, and maintain a competitive edge in an increasingly digital marketplace.

Supply chain optimisation

Optimising supply chains helps retailers reduce waste and meet demand efficiently. Retailers must maintain a balanced inventory and ensure sufficient stock to meet demand while avoiding excess that ties up capital. Overstocking leads to higher storage costs, while understocking can result in missed sales opportunities and dissatisfied customers.

By leveraging inventory management tools, retailers can monitor stock levels in real-time, forecast sales trends, and automate restocking processes. This ensures that popular products remain available without the risk of overstocking. Additionally, building strong, long-term relationships with suppliers enables businesses to negotiate better prices and terms, reducing procurement costs and ensuring reliable product availability.

Highlighting premium brands

Highlighting premium and luxury brands enables retailers to differentiate themselves and gain a unique market advantage. Unlike generic products, they are less affected by price changes because customers see them as symbols of quality and trust. This strong brand perception fosters customer loyalty, leading to repeat purchases and long-term relationships.

Retailers that prioritise premium products can differentiate themselves from competitors, offering exclusive collections and personalised services to their high-value customers. This approach enhances brand reputation and contributes to sustained revenue growth.

Building loyalty programmes

Investing in loyalty programmes fosters retention and deeper customer relationships. In price-sensitive markets, customers often chase the best deals, regardless of the retailer. However, a well-crafted loyalty programme can shift this behaviour by strengthening customer retention and fostering brand engagement.

According to a study, 46% of members in successful loyalty programmes are unlikely to switch to a competitor. By investing in a strong loyalty programme, retailers can reward repeat customers, offer exclusive discounts, and create personalised experiences that encourage long-term loyalty.

How can Infosys BPM help?

Rising retail pricing pressures demand innovation and strategic cost-reduction measures. By harnessing advanced technologies, streamlining operations, and understanding customer needs, retailers can strike the right balance between competitive pricing and profitability.

However, implementing such advancements often requires specialised expertise and a strategic approach that may not be readily available in-house. This is where Infosys BPM emerges as a trusted partner. With cutting-edge automation solutions and proven expertise in strategic cost optimisation, Infosys BPM enables retailers to transform their operations. By reducing expenses, enhancing efficiency, and delivering measurable outcomes, Infosys BPM empowers businesses to navigate pricing challenges and thrive in a competitive landscape.

Explore Infosys BPM’s retail solutions to implement effective cost-reduction strategies and drive sustainable growth.