Mitigating Inflation Through Intelligent Customer-Centric Pricing

Even as inflation subsides, its lingering effects will persist.

Grocers’ pricing decisions today will shape customer perceptions long after prices and branding are adjusted, making accurate pricing crucial not just for competitive reasons, but for maintaining customer trust.

According to the USDA, consumers have spent 11.3% of their disposable income on food, the most since 1991 when it was 11.4%. The long-term impact of rising grocery prices is significant, as they rarely decline. The US Department of Agriculture’s finding that households in 1991 were still affected by the 1970s inflation underscores this point.

Before last year’s historic rise in inflation, US consumers were accustomed to steady inflation of ~2%/year over the previous 10 years and 3%/year in the 20 years before that.

Gen X, Millennials, and Gen Z consumers have never seen price shocks. For Baby Boomers, it’s a distant memory from early in their careers.

Consumers must reset their price anchor to the new reality, and that won’t happen quickly.

Today’s reports show that price expectations aren’t even close to being aligned. 

Consumers recall when butter was $1.89, but now it’s $3.50. A pound of peaches went from $1.89 to $2.99.

Although consumers accepted higher prices during the pandemic due to supply chain disruptions, labor shortages, and increased demand, prices continued to rise. Even as inflation has moderated, it has stubbornly remained above the Federal Reserve’s 2% target, hovering between 3% and 4% since May 2023.

Consumers viewed price hikes as temporary.

“The fact that they’re not and they’re continuing to go up is frustrating.”
-Stephanie Tully, Professor at the University of Southern California’s Marshall School of Business

Source: WSJ.com, We Still Don’t Believe How Much Things Cost

Shrinkflation isn’t helping either, to the point that Senator Bob Casey is getting involved.

He released government data which he said shows that some CPG companies try to mask inflation by quietly downsizing product sizes without adjusting prices or clearly notifying consumers. In a follow-up report, he also expressed that from July 2020 through July 2022, inflation rose by 14% while corporate profits rose by more than 74%—nearly 5x the inflation rate. While politics can play an angle, it does reflect consumer sentiment.

Current Consumer Sentiment and Impact on Spending

Consumer sentiment is backed by financial facts.

And people’s financials are taking a hit.

As of mid-2021, US consumers had over $2 trillion in savings, a peak from the pandemic. In November 2023, that number was $321 billion. More importantly, the excess savings drawdowns have been relatively even across income groups. This is happening during a period of very low unemployment, the latest reading being 3.9% in February, up a tick from 3.7% in January. So, people are working and falling behind.

401k plans offer another data point. Despite higher savings in 2023 into retirement accounts, 401k hardship withdrawals are up. Around 3.6% of 401k participants pulled money from their accounts, compared to 2.8% in 2022 and above the pre-COVID-19 pandemic average of about 2%.

Finally, despite all the stimulus money, low unemployment, and tempering inflation, consumers have never, once in the last four years, felt as optimistic about the overall state of the economy or their personal financial situation as they did before the pandemic. However, their optimism did fall to all-time lows in June 2022.

Consumers are feeling the pain of inflation and becoming frustrated with continued high prices.

These financial pressures force consumers to reduce spending, switch to cheaper brands, shop around for discounts, and buy fewer non-essential items.

The Need for Customer-Centric Pricing

Here we are, years later, and rising costs still haven’t truly settled. Tariffs rippled through global supply chains. Supplier price increases remain unpredictable. Inflation’s legacy still pressures every category in your store. Grocers can’t rely on static pricing strategies or past assumptions when cost volatility reshapes margins week in and week out.

Shifting to a customer-centric pricing approach means understanding how shoppers value each item and helps you protect image and profitability. Answer these questions:

• What items do your customers care about, and how are those items affecting your business’s price/value perception?
• When the price increases or decreases, how does that affect the sales of that product?
• How do customers react to your promotions? What is the lift from the offer and the ad placements?
• How do these answers vary by store, region, or market?
• How are customer signals changing over time?

These are demand-based questions, and most pricing approaches weren’t built to answer them because they start with the product instead of the customer.

Understanding how your customer demand changes relative to price or the price elasticity can help you decipher the pricing opportunity.

One way to visualize this is through an opportunity curve:

–Plot an item’s price range alongside its expected revenue and profit impacts

–Pinpoint your current price to assess whether movement unlocks margin or volume

–Overlay your pricing rules to see how constraints limit or guide your opportunity

That visualization alone is valuable. But the real power comes from applying it everywhere:

1. Every item in your assortment
2. Across every location and price zone
3. Updating it over time as consumer preferences shift.

This allows you to set the best prices for your enterprise according to your strategy and goals.

Grocers can’t control volatility, but you can control how they respond to it.

A customer-centric approach equips retailers to set the right price for every item, in every store, aligned to both price image and profit goals—even when costs are unpredictable.

Turning Insights into Strategy with Retail Pricing Optimization Software

Retailers generate endless pricing signals… competitive activity, margin pressures, supplier cost changes, and shifting shopper behavior but struggle to turn those signals into actionable decisions. ClearDemand transforms these insights into repeatable pricing strategy by modeling demand, forecasting outcomes, and prioritizing items based on their influence on price perception and profit contribution.

With customer-centric elasticity modeling, rule-based controls, and measurable value tracking, ClearDemand helps grocers go beyond intuition and prove what each price move delivers.

Balancing Profit and Customer Value

Looking to grab some additional market share and where you can lower prices without destroying your profitability? Did your vendors raise costs, and you want to determine where you can save some of your margins while still being ultra-competitive? This analysis is the foundation of answering those questions. It balances the trade-offs.

Both consumers and grocers are dealing with the impacts of higher costs and inflation.

Consumers see more of their income covering food expenses and their savings dwindling.

Grocers are coping with higher operational costs, rapidly shifting consumer spending behaviors, and pressure to find profits without alienating their customers. Unfortunately, none of these pressures will leave anytime soon.

Taking a consumer-centric approach and listening to the signals that consumers give with every purchase decision, grocers will align their prices to customers’ expectations while ensuring healthy profits. Consumers have never been against businesses making a profit; they want fair, competitive prices that justify the value.

Shoppers judge value through the prices they remember and the items they compare. ClearDemand ensures your prices are competitive where they matter most, strategic across your assortment, and consistent with your brand promise.