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How is inflation affecting social commerce?

Meet Maya AI How is inflation affecting social commerce? Insider Insights
When most people think of inflation, they think of the price of groceries or gas going up. But inflation has a much broader impact on social commerce

When most people think of inflation, they think of the price of groceries or gas going up. But inflation has a much broader impact than that. Inflation is the sustained increase in the cost of goods and services over time. It is measured by the Consumer Price Index (CPI). The CPI is a snapshot of prices for a “basket” of common goods and services like housing, transportation, food, and healthcare.

According to a recent study looking at online inflation data, Adobe believes that some of the increase in e-commerce sales is due to inflation. This inflation is reported to have started early in the pandemic and has continued for 21 consecutive months. Despite e-commerce sales being expected to skyrocket, a study by market research firm Forrester predicts that brick-and-mortar stores will dominate sales over online sales in the next few years. Regardless of the difficulties of consumer shopping patterns, we expect things to return to normal once inflation falls.

Inflation affects social commerce in a few diverse ways. First, it can impact the prices of goods and services offered on social commerce platforms. Second, it can affect the spending power of consumers who use social commerce platforms. And third, it can influence the amount of tax revenue generated by social commerce transactions.

How inflation affects prices on social commerce platforms?

Inflation can directly impact the prices of goods and services offered on social commerce platforms. For example, let us say that the CPI for housing increases by 2% year over year. This means that the cost of renting or owning a home has gone up by 2%. Now, imagine that you own a home-sharing platform like Airbnb. One of your major expenses is paying your hosts who list their homes on your platform. If the CPI for housing goes up by 2%, then your hosts’ costs have also gone up by 2%. To keep them from leaving your platform to list their homes elsewhere, you may need to raise your prices so that they can continue to earn a profit.

Of course, raising prices is not always an option. If your competitors are not raising their prices, then you may need to absorb the increased costs yourself. This will reduce your profits and may force you to make cuts elsewhere to stay afloat.

How does inflation affects consumer spending power?

In addition to affecting prices, inflation also affects consumers’ spending power. As prices go up, consumers have less money to spend on non-essentials like travel and entertainment.

This can directly impact social commerce platforms like Groupon and LivingSocial because these platforms rely on people having disposable income to spend on leisure activities. If inflation is high and people feel pinched for cash, they are less likely to take advantage of deals offered by these sites.

How does inflation affects tax revenue from social commerce transactions ?

In some countries, social commerce transactions are subject to value-added tax (VAT). VAT is a consumption tax that is levied on each step in the production and distribution of goods and services. The VAT rate varies from country to country, but it is typically around 20%.

Let us say that the VAT rate in France is 20% and someone buys a shirt from an American retailer for $100 through a social commerce platform like eBay. The French government will collect $20 in VAT from the transaction ($100 X 20%). Now, let us say that inflation increases the price of the shirt by 10% to $110. The French government will now collect $22 in VAT from the transaction ($110 X 20%). So even though the consumer only paid $10 more for the shirt, the government collected an extra $2 in taxes because of inflation.

So how does this affect social commerce? In short, it makes it more expensive for brands to reach their audience through social media platforms. This is because brands typically use advertising as a key marketing tool on these platforms. And when advertising costs go up, so do the prices that brands must pay to reach their target consumers.

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4 strategies for e-commerce brands to respond to inflation

This trend is likely to continue as inflation rates continue to rise. To stay competitive, businesses need to find ways to offer their products and services at a lower cost. One way of doing this is by using social media platforms to reach out to potential customers and offer them discounts or exclusive deals.

1. Strengthen your organic marketing efforts- Brand building

Advertising competition on Amazon and other channels remains fierce, with ad spending rising steadily and return on ad spend (RoAS) declining. When considering how to adjust your paid marketing budget, focus on increasing your brand’s organic presence. Social media has become a very influential resource when it comes to deciding which products to buy and which brands to buy from. 70% of consumers initiate product searches on social media, and a half (45%) read social media comments to find out what people are saying about brands.

2. Adopt shopping cart box best practices

Luckily, all four of his strategies above (brand building, markup, sales data monitoring, and inventory management) represent best practices for winning both Amazon and Walmart buy boxes. In addition to these four anti-inflation techniques, brands and merchants can also optimize their product listing information to show the best content.

3. Be strategic about price increases

Price increases are often necessary when inflation rises. However, almost half (48%) of consumers say consistently low prices are the main reason they do not buy from their favorite brands. Revamping your pricing and product catalog can help you balance your increasing costs while minimizing the risk of losing long-time customers.

4. Personalized deals and reward programs

Another way of offsetting the impact of inflation is by offering loyalty programs or rewards that can help customers save money overall. These programs can be highly effective in retaining customers and ensuring that they keep coming back, even when prices are on the rise.

Inflation is having a major impact on social commerce, but there are ways for businesses to counter its effects. By being proactive and finding ways to offer their products and services at a lower cost, businesses can keep their sales up and ensure that they are not impacted too severely by the rising prices. Inflation does not have to be a death sentence for social commerce businesses; with the right strategies in place, it can be manageable.

 

To combat inflation, businesses need to get creative and find ways to offer their products or services at a low Inflation is having a major impact on social commerce, but there are ways for businesses to counter its effects. By being proactive and finding ways to offer their products and services at a lower cost.

 

Inflation is a broad economic concept that can have a direct impact on social commerce platforms as well as the consumers who use them. Platforms may need to raise prices to keep up with rising costs, which could lead to reduced profits or even force them out of business altogether. Meanwhile, consumers’ spending power may be diminished, causing them to curb their spending on non – essentials. Lastly, inflation-related hikes in the prices of goods subject to value-added taxation could lead to increased tax revenue for governments. These impacts underscore the importance of monitoring inflation rates closely to ensure that social commerce businesses can adapt accordingly.

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