The Real Impact of Higher Supply Chain Costs

Retailers may be tying the last bows on the holiday shopping season, but the supply chain issues that have plagued the industry are going to persist. Retailers therefore need strategies to offset rising costs related to supply chain issues. 

The supply chain problem isn’t going away

COVID-19 has put the supply chain on the radar for end consumers, many of whom never thought about where the clothes on their back or the food on their plate originally came from. But the pandemic did not cause the supply chain issues, nor will the end of the pandemic necessarily resolve them. The real source of our challenges are multifactorial and originate well before the pandemic. The term supply “chain” is a misnomer. It’s more of a supply network linking the many participants to each other. Raw material producers, suppliers, manufacturers, distributors, and retailers all do their part in a symbiotic process that ends with a product in the hands of an end customer. When images of container ships backed up at crowded ports make the front page of global newspapers it points the finger at the distribution channel, but pressure exists for all parts of the network, including:

• Raw materials producers such as cotton, polyester, plastics, and fossil fuel producers, whose products are becoming more expensive
• Suppliers contending with higher gas prices and import tariffs, making it more expensive to transport items across borders
• Manufacturers who aren’t getting the materials they need when they need them, and who are dealing with the impact of COVID-19 restrictions, staff illness, and employee turnover on product production
• Distributors on the front lines of shipping delays, rising fuel costs and challenges hiring truck drivers or port workers are struggling to get products to their end location.

Rising costs at each stage pile up to create higher costs of goods for retailers. Some may simply choose to pass on those increased costs to the end customers. But not everyone wants to do that, nor can all retailers do that and still maintain sales volumes. Many are looking for other ways to cut costs or increase the average product sales price as a way of protecting the bottom line.

2 ways to offset supply chain cost increases  

Retailers looking to offset supply chain cost pressures have few methods for doing that directly within the supply chain, since the price of commodity materials, fossil fuels used in transport, and tariffs paid at borders for imports are determined by global markets that are degrees of separation away from the retailer. Instead, most retailers are looking for indirect ways to offset supply chain costs. Options for doing that include lowering expenses from other areas of the business or increasing effectiveness of revenue generating activities. More effective language can help retailers drive improved results in each of these areas. Consider these examples:

Lower customer service costs

Retailers spend millions of dollars a year addressing customer service through their call centers, online chat services, and brick-and-mortar stores. IVR systems and chatbots have been taking on more of the burden by offering customers additional self-service options, but their impact depends on whether the words powering these solutions point the customer to answers that keep them out of the agent queue.The right words can not only improve customer satisfaction but save millions of dollars. For example, one health insurance company that worked with Persado leveraged the firm’s content generation and decisioning platform to create an email informing customers that they could use the insurer’s smartphone app to renew prescriptions. One simple campaign saved the insurer $1.5 million in service costs the year it ran.

Improve ROI from marketing investments

Language can also help offset supply chain costs by improving the returns on existing investments in marketing technology. Many modern retailers have spent millions on customer relationship management platforms, web design, and customer data platforms. These investments are critical for the execution of modern, personalized marketing programs — and yet they often need an additional input in order to bridge the “last mile” between the technology and the customer experience. Language provides that bridge.In the case of a customer data platform, these resources pool data from different sources and channels to create a holistic view of the customer. Yet that customer view by itself doesn’t produce results until it is activated through an effective campaign or message that motivates a customer to make a purchase — ideally one for the list price of the product.A retail customer of Persado witnessed the power of marrying CDP data with Persado’s content generation AI through an experiment designed to limit the need to discount products in order to produce a sale. Using CDP data, the retailer identified customers that would make a purchase no matter what, as distinct from those that would only buy if they had a coupon. Persado then ran an experiment using that customer data to identify different messages to engage each group. The resulting campaign allowed the retailer to sell more products with fewer discounts — and increased the value of their CDP investment at the same time.

Improve the bottom line with effective communications

Leaders recognize that better experiences driven by more effective creative content positively impacts performance. The better the creative, the higher the impact. Technology like Persado’s allows retailers to generate relevant messages at scale and precisely compare the results to a control message to measure impact. On average, Persado outperforms control content 96% of the time, producing an average 41% performance improvement. We not only know when a Persado-generated message outperforms our client’s, we also know why. And can pinpoint the exact impact of each element of the message to drive future improvements at scale across channels. From more effective customer service at lower costs, to higher impact on marketing investments, language offers a new, underutilized way to offset the impact of the ongoing supply chain crisis.