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With geopolitical issues, prices are expected to rise even more over the next few months all across the world. Just like the rest of the world, inflation has also hit Hong Kong, which not only affects consumers but businesses as well.
So, what are the causes of inflation? How can businesses survive the inflationary pressure and solve this problem?
When there are supply chain disruptions or increased fuel prices, raw material price increases which means that businesses will now incur more costs during manufacturing. To keep up with their profits, they may transfer all the extra costs to the consumers but this comes at the price of losing customers.
Alternatively, they may choose to absorb the majority of the increased cost themselves and may produce less to keep their businesses running. This also creates ripples downstream, where a decreased supply of raw materials translates to a supply chain price increase. In one way or the other, this results in increased prices for the consumer since now their buying power has been reduced which, in turn, affects the business sales, thus reducing their total revenues.
The impact of inflation on a business varies across businesses. The extent to which different businesses are affected depends on several factors such as:
Similarly, for a product or service that has many sellers, increasing prices as a result of inflation carries the risk of losing customers who can easily switch to a new seller with more affordable options. However, for products with few sellers, consumers have no other option, so they may continue to pay for the products even when prices are higher. Such businesses are less affected by such price hikes.
When it comes to brand strength, people are willing to pay more for branded goods that they trust as compared to general goods. Thus, a business that has a strong brand strength is much less affected by inflation as compared to its competitors.