More than 80pct of businesses raise prices to cope with inflation, some choose to absorb despite margin squeeze: Grant Thornton

KUALA LUMPUR: Businesses are applying different pricing strategies to cope with rising inflation with the top choice is, unsurprisingly, raising their prices.

Others had chosen to absorb part, if not majority, of the cost to avoid losing customers although this would cause a dent in their profit margins, according to Grant Thornton in its latest research released today.

The research showed that 82 per cent of Malaysian businesses had been increasing prices in response to inflation.

Grant Thornton said inflation was a key concern for businesses globally and in Malaysia. However, around three-quarters of these businesses had not taken the appropriate actions.

The research showed that key input costs of businesses in Malaysia had gone up nearly a fifth (19 per cent on average) led by raw materials (up 22 per cent) and energy (19 per cent). 

Bank/ interest costs, meanwhile, have surged 19 per cent and tax bills have risen by 17 per cent. 

Grant Thornton Malaysia PLT country managing partner Datuk N.K. Jasani said the sentiment about inflation had shifted rapidly at the start of 2022 from being a transitory, predominantly supply chain and release of pent-up demand issue, to one that had taken a firmer grip.

"To cope with inflation, businesses are applying different pricing strategies. Thirty-seven per cent of businesses have increased prices in line with inflation, while 33 per cent have increased prices above inflation. Only 12 per cent of businesses have increased prices below their costs.

"To avoid losing customers, some businesses choose to absorb part if not majority of the cost, causing a dent in their profit margins," he said in a statement.

Jasani noted that businesses were squeezed hard between rising prices and customer's unwillingness to pay more and that could result in them going out of business when they could not hold the fort any longer. 

"If prices still need to be increased, there are multiple factors to weigh up: existing contractual terms, timing of the increase, nature of historic increases, who the increases should apply to, whether you can link the increases to new features and customers' willingness to pay," he said.

Grant Thornton experts have identified seven actions that businesses should be taking now to deal with the threat of inflation. 

Businesses should identify and mitigate the risks of inflation by working across their business to identify where they are most exposed to inflation. 

They can also take action to limit external cost increases and ​​outsource more activities to lower costs and ameliorate labour shortages. 

Other options to consider include changing their pricing strategy to be more in line with cost increases, taking action to improve capital structure and taking steps to improve internal efficiency and costs, and/or reduce waste.

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