Supply Chain Blues: Demand Outpacing Supply Means It's Time to Look at Pricing

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A 5-minute read to one fix

The global supply chain situation shows no sign of abating. In just the past week alone, the Wall Street Journal reported that, as of October 7, nearly 500 large container ships were waiting to dock in North America, Europe, and Asia. The same article bemoaned supply issues across the board from auto manufacturing to Christmas trees and Scotch Whiskey.

While there’s not much we can do at this juncture to speed everything up, retailers can find short term relief and lay the groundwork for better decision making in the future by implementing pricing and merchandising strategies that can help mitigate the current situation.

A quick refresher in Microeconomics 101 will remind us that “the law of demand says that at higher prices, buyers will demand less of an economic good.”   This seems like a simple enough process in theory but in real life, we know that there are goods which have price elasticity curves and others, like food, medicine, and other necessities, that are inelastic.

Today, with a $4 Trillion savings rate in the United States, Americans will spend more to secure the goods that they really want. According to the Kansas City Federal Reserve Bank, the savings rate has leveled off since the height of the pandemic, but still stands at 14 percent, which is twice as high as it was pre-pandemic. This extra savings emboldens consumers to “treat themselves” to items that they feel they deserve, or gifts they really want to give. So price elasticity, along with the demand curve, is out of whack.

Optimizing pricing is more of a science than an art, especially today as prices for everything from fuel to containers continues to rise.

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pricing  retail pricing  voice of the customer  supply chain challenges  supply chain  Voice of Customer Analytics  Global Supply Chain  inflation

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