• Monday, April 22, 2024
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Inflationary pressure: Beware of corporate hubris

Inflationary pressure: Beware of corporate hubris

I experienced a surprising event yesterday when a particular consumer product that I buy monthly had a sharp price increase. The price had risen by 80 percent compared to my last purchase. Upon reaching the point of payment, I discovered this significant increase and decided to change my purchase. I returned the product and opted for a competing brand, which happens to be the market leader, priced 53 percent lower than the brand I previously purchased. In fact, I ended up buying two of the alternative brands for a little above the price of one of the original products.

This situation led me to ponder why a market follower would be priced 53 percent higher than the market leader, who has a stronger brand name. What could be going on in the minds of the owners of the brand? What could be the rationale behind this pricing strategy? Are they disconnected from the current market realities? Have they overlooked the declining purchasing power of consumers? Are they aware that such pricing disparities could lead to competitors seizing their market share? Could they not have explored cost-reduction strategies to avoid such drastic price hikes?

This appears to be a case of corporate hubris, potentially alienating customers and driving them towards more affordable alternatives. The same way I changed my mind to buy a competing brand is the same way many other consumers would change their minds because application of discretion is the order of the day now with unlimited desires but scarce resources to meet them.

Undoubtedly, Nigeria is grappling with soaring inflation rates, reportedly the highest in the fourth republic’s 25-year history. This inflationary pressure has permeated all sectors, primarily driven by escalating input costs. Organisations are facing challenges due to rising raw material prices, forcing them to pass on these costs to consumers in order to sustain profitability and viability. Consequently, many companies are witnessing shrinking profit margins, and some multinationals are even operating at a loss due to prevailing macroeconomic conditions.

Consumers’ affordability issues are made worse by slow pay growth and declining purchasing power. Inflation erodes the salaries of even individuals who have witnessed salary rises, decreasing their purchasing power. For instance, a teacher earning N50,000 [$120] monthly will likely face significant challenges as the prices of basic necessities, like food and transportation, have increased considerably.

They will be forced to prioritise essential items, potentially sacrificing non-essential purchases like entertainment or new clothes. This economic reality forces individuals to make difficult choices, often sacrificing non-essential goods and services. The scenario poses a significant challenge for businesses offering non-essential goods or services during this period.

Meanwhile, competitors are actively vying for a larger slice of the market share pie. Market leaders are not immune to this competitive landscape; they too seek expansion and consumer acquisition. The fierce competition among organisations underscores the importance of considering consumer behaviour and competitor reactions when making strategic decisions.

Neglecting these crucial factors can result in a loss of sales and market share.

It is my hope that the organisation in question recognises their misstep promptly and rectifies their pricing strategy; otherwise, they risk substantial losses in sales and market share.

The sales teams are often unfairly blamed for sluggish sales during such periods of turmoil. I recall a similar experience from my tenure at a consumer goods company, where an ill-timed price increase led to plummeting sales, necessitating a subsequent price reduction with distributor reimbursements. We had to reduce the price by N100 [7 cents] some months later with a promise to reimburse the distributors.

The above narrative underscores the need for reflection and adaptability in business operations; any hint of corporate arrogance can swiftly erode market dominance. Market dynamics demand vigilance and responsiveness to consumer needs and competitor actions to safeguard one’s position in an increasingly competitive landscape.

The fundamental question persists: Why invite mistakes that could jeopardise your hard-earned market position?

Oluwole Dada is the Head of Sales and Marketing at SecureID Limited.