UK inflation commentary - December 2017

Black Friday weekend delivers an estimated £940m savings to UK consumers, softening recent inflationary blows

As with Black Friday, Christmas is set to be a major “digital event”– great for consumers, but could be disaster for unprepared businesses

 

London, 6th December 2017

Mark Billige, UK Managing Partner at Simon-Kucher & Partners (the world’s leading pricing strategy consultancy), comments ahead of Tuesday’s Consumer Price Inflation figures for November:

The CPI inflation rate of 3.0% seen in October remained the highest level seen in the UK in the past 5 years. When the next set of inflation figures are released on Tuesday (12th December) we could see inflation start to subside. 

The effects of Black Friday & Cyber Monday are unlikely to be captured in CPI inflation

As CPI inflation in the UK is generally measured during a period in the middle of the month, the impact of Black Friday & Cyber Monday is unlikely to be captured in November’s CPI figure.

Black Friday & Cyber Monday delivered £940m of savings to UK consumers

The Black Friday / Cyber Monday weekend of sales resulted in UK consumers saving an estimated £940m. This saving will offset some of the additional costs consumers will face due to inflation. Whatever the CPI figure is for November, the reality is it is likely an overestimate as the nearly £1bn savings delivered by the Black Friday weekend are not included in the calculations.

As a result, consumers might be in a slightly better financial position this Christmas than the headline figures would have you believe.

Black Friday is increasingly a digital event

While consumers saved from lower prices, not all companies benefited, with ecommerce growing at the expense of physical footfall. On Black Friday itself, footfall was down 3.6% in physical stores, but ecommerce sales were up 6% year on year according to PCA Predict.

The big winners this year were “Digital Champions“ - companies that have embraced Digitalisation, avoided loss making [SP6] promotions, and who are able to convert online shoppers (from Black Friday weekend) into loyal customers for the months and years ahead (thanks to capturing their email address during checkout).

Most traditional bricks and mortar retailers are unable to capture customer contact information, meaning after customers have come and gone on Black Friday there’s no opportunity to contact them again in the future.

Get ready for a digital Christmas too

It’s not just Black Friday which is becoming more Digital, Christmas this year is set to be more digital than ever.

All this digitalisation causes significant downward price pressure which is expected to keep inflation in check in the mid term.

From our experience of working with hundreds of businesses undergoing digital transformation, it’s clear that digitalisation causes greater price pressure. This downward pressure on prices comes from increased price transparency, a higher risk of price wars, and because new technologies enable bad pricing decisions to be made faster than ever before.

Our recent Global Pricing and Sales Study revealed that digitalised companies are twice as likely to start price wars, with a detrimental impact on profit margins. Additionally, 3 in 4 companies fail to grow their top line with digitalisation.

Businesses need to make sure they avoid these mistakes and invest in the right digital initiatives – those with the greatest topline impact.

As the digitalisation trend accelerates in 2018 we expect this to have a dampening effect on inflation.

 

The Office of National Statistics will release its Consumer Price Inflation stats for the month of November on Tuesday, 12th December. Below you will find some brief analysis and comments ahead of this from pricing experts Simon-Kucher & Partners.