As the Decile team makes their way through the 2025 conference circuit, one topic is at the forefront of retailers’ minds: profit margins.
Inflation has increased supplier pricing, making the manufacturing of products more costly. As tariffs increase and ad costs continue to rise, profit margins get squeezed even tighter. How are brands mitigating these challenges, and maintaining profitability through it all? Let’s take a look.
Pricing Thresholds
Brands aim to raise prices while keeping cost-sensitive customers happy. Like discount thresholds – where discounting is not likely to affect customer behavior to a certain point – the same applies to overall pricing. Small price hikes might not scare off customers, but larger changes can make them hesitate, or even abandon their purchase.
When updating pricing, brands should consider:
- How can a product reach its full pricing potential while staying profitable? Does this mean increasing prices with better margins but selling fewer units? Is having modest margins and more volume a better strategy?
- Will there be a perceived change in affordability or value with an increased price?
- Should we raise prices for the entire brand or just certain products?
- As the brand rolls out new pricing, do discounts and promotions need to be available to curb any potentially negative effects?
- Are specific groups of customers more price-sensitive than others? What product(s) are your price-sensitive groups most likely to purchase?
- Should the brand consider a new lower-priced product offering?
By understanding price thresholds, brands can determine the sweet spot for maintaining profitability and keeping customers happy.
Marketing Efficiency
Ad prices only seem to be going up, which makes ROAS a constant challenge for marketers and another area where profitability can take a hit. Brands should prepare their identity-based marketing strategy. Even though cookie deprecation was delayed, signal loss can still happen down the line. Planning now will help future-proof the business.
To maximize marketing efficiency, keep in mind these key areas:
- Utilize your own first-party customer data. This is your strongest marketing asset – especially as privacy concerns and changes arise.
- Shorten the algorithm learning phase. Typically, it takes about a week for a brand’s ads to exit the learning phase, depending on things like ad budget, audience size, and the number of ads. This can potentially waste budget without much return. By understanding exactly who your target audience is and starting with a defined set of parameters, you can reduce the time it takes for the algorithm to find the right customers to make your ads effective.
- Brands are well aware of the power personalization can have on ad performance. However, some are still lacking the actionable insights needed to make meaningful changes to their personalization strategy. With the right analytics in place, you’ll be able to easily understand how customer cohorts differ and personalize based on things like product preferences, channel preferences, lifecycle stage, and more.
- Measure and pivot in real time. Now, with predictive insights, you don’t have to wait months to see if your campaign attracted high LTV customers. You can analyze these metrics in real time and adjust your campaigns as needed based on the results. Not only will you get the most out of your campaigns, but you won’t waste budget on initiatives that aren’t working.
Make marketing campaigns work as efficiently as possible, for a better chance at maintaining profitable growth.
AI
The popularity of AI is no secret, and when used effectively can have a major impact. But just because a tool claims it leverages AI doesn’t make it useful or meaningful to your growth.
Here are a few ways Decile clients are using AI to maximize profitability:
- Creating tailored personas for each brand involves using customer purchase data along with softer metrics like demographics and interests. No two brands have the same makeup, just as no two brands have the same set of customers. By being able to access these in just minutes and follow how they change over time, marketers can tailor campaigns to speak to these groups, including their behaviors and interests.
- As we mentioned in the last section, predictive LTV can be a very useful tool in understanding whether you’re acquiring high-value customers in real time. Make sure that the tool you choose utilizes historical data to model the likelihood of future spend.
- Define customer lifecycles – including those who are likely to purchase again soon and those who are at risk of churning. Use these details to retain more customers, reduce time between purchases, and make your campaigns overall more effective.
While there are certainly some challenges ahead, it isn’t all doom and gloom. Consumer spending is expected to see a moderate increase in 2025, according to Forbes. Additionally 85% of global consumers are now shopping online, and social commerce is on the rise, making it a must for brands of all sizes.
With a plan in place to help maximize profitability through tariffs, regulatory changes, and more, we’re confident that retailers will make 2025 a successful year.
Need help accessing the tools to button up your strategy? Book a demo to see how Decile can help!