McKinsey&Company
Handle price hikes
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‘Shrinkflation.’ Check-processing fees, surcharges for materials, and charging for previously free services: companies are creating new ways to pass along cost increases to consumers, and often without changing the sticker price. Several industries have long employed what economists call “shrinkflation” during challenging times, downsizing packaged content to avoid conspicuous price hikes—for instance, selling cans of tuna with less meat. Hidden price increases may allow firms to pass along costs more easily, but consumers are also pushing back, forcing some businesses to cancel fees. [WSJ] |
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Pass the buck. Amid historically high inflation, more US small businesses are charging higher prices to account for rising costs, reveals a new survey. In January 2022, 47% of small-business owners said that they are passing costs on to consumers, compared with 39% last November. Another 32% said that if inflation persists, they’ll be forced to raise prices in the near future. Some small businesses are now unable to order supplies in smaller amounts, since vendors are favoring big clients that place high-volume orders. [CNBC] |
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Sticker shock. People everywhere are paying higher prices for materials, products, and services. At the end of 2021, Europe saw natural-gas prices rise to more than 12 times prepandemic levels, while in January 2022, the US consumer price index soared 7.5% over the previous year. For the first time since the start of the COVID-19 pandemic, executives consider inflation and supply chain disruption to be bigger threats to economic growth than the pandemic itself, according to a McKinsey survey.
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Beyond the usual solutions. Raising prices and revisiting purchase agreements are typical ways of dealing with cost pressures that just won’t cut it these days. Leaders must look across the entire business, including every aspect of its operations, to reduce costs and protect the business from volatility. One electric-vehicle battery maker, by overhauling its production system, improved labor productivity by 75% and reduced defects by 80%. See our playbook for short-, medium-, and long-term ways to manage price increases. |
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| — Edited by Belinda Yu |
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