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Save your USP: Withstanding the cost of living crisis and disputing increases in supplier costs

Over the last few years, we’ve seen consumers pressing brands for more sustainable products and services as well as transparency with regards to their societal and environmental impact.

The pandemic saw consumer’s shift towards supporting local, independent retailers over larger multi-national business and from purchasing mass-produced items to more personalised and bespoke goods. These switches, although more socially and environmentally conscious, usually carry an additional cost, a cost that conscious consumers are willing to accept with more disposable income.

However, UK inflation hit a 40-year high of 9.1% in May 2022 and it’s expected to hit 11% this autumn. Headlines and news stories appear daily concerning record breaking prices for goods and services. Alongside a lack of wage costs rising in an inflationary manner, there’s an ever increasing pinch on the purchasing power of consumers.

Consumer research suggests that many consumers are switching to cheaper brands, foregoing non-essential items, driving less, and using less electricity in a bid to save cash.

In a statement released on 22 June 2022, Helen Dickinson, Chief Executive of the British Retail Consortium, said in light of the squeeze from rising prices, “[f]ierce competition for market share means that retailers will continue try to absorb as much of these costs as possible and look for cost-savings elsewhere.” Businesses can only try to absorb the hike in prices to a certain extent with small to medium sized enterprises struggling to absorb the same as larger entities that have the ability to promote more affordable ranges they carry.

As a result, the limited ability to absorb hikes in supply chain costs of smaller businesses, particularly those offering bespoke or socially and environmentally conscious goods and services that carry higher supply chain costs in any event, could be forced to either pass on those higher prices to consumers or lose their unique selling point or product offering by changing suppliers or business model to keep costs down.  

For those smaller businesses concerned about the risk to its branding and costs strategy, it’s always worth exploring rights and obligations in contracts with suppliers for terms defining minimum purchase order requirements or agreements as to fixed costs of products and services procured. Contractual terms with suppliers may be an overlooked area where cost-savings could be made by a business to avoid the same being passed on to consumers, or risking brand strategy.

If your supplier intends to increase its own costs in light of the current economic status, it’s worth checking the contractual terms to determine whether the right exists in contract for a supplier to increase its prices, disputing hikes in prices where rights are absent.