Global Inflation and Rising Cost of Living are Affecting Pricing Strategy and Supply Chain Management
The consumer-packaged goods (CPG) sector is entering 2025 at a critical juncture. Rising economic pressures are creating significant strain on the supply chain, while shifts in consumer behavior are redefining market priorities. The industry is experiencing increased costs of raw materials and logistics, which drive up consumer prices. Even though inflation has decreased, its lingering effects continue to be a concern for many households.
Meanwhile, awareness of the environmental impact of consumption is growing and recent analyses from PwC, McKinsey, and BCG show notable disparities in consumer spending behaviors between higher- and lower-income households. Higher-income consumers are especially willing to spend more on responsible sources products. However, McKinsey also notes that older, high-income individuals are particularly inclined toward discretionary spending, including travel, home improvement, and luxury purchases. The report also indicates a weakened brand loyalty across ages and geographies.
This presents challenges and opportunities. While premium offerings retain appeal, brands must work harder and integrate clear value propositions—such as sustainability and innovation—to maintain their market share and customer loyalty. In contrast, lower-income groups are reducing expenditures and focusing on essential goods and value.
Source: 2024 BCG Europe Consumer Sentiment Study.
Pricing Strategy Adjustments: Navigating Inflation and Rising Costs
Despite prolonged pricing pressures and declining volumes, CPG brands must strategically use promotions to grow market share while protecting profit margins. Many companies are adopting dynamic pricing to adjust prices in real time based on market conditions and competitor activity, while others are leveraging loyalty discounts to retain customers. Value-based pricing is also gaining traction, where brands emphasize features like quality, sustainability, or innovation to justify higher prices. As brands collect and analyze more customer data, personalized pricing is becoming a key strategy to optimize promotions, offering targeted discounts and tailored pricing that balance consumer demand with profitability.
In that environment, AI is transforming how businesses price and compete, just as the internet revolutionized how we connect 20 years ago. Today AI tools are providing CPG professionals with real-time market intelligence and predictive capabilities that enable faster, data-informed decisions and strategic moves.
For example, Precision Pricing from Revenue.AI allows brands to bring real-time (promo) pricing adjustments, competitive analysis, and data-driven simulations to smaller markets, ensuring no region is left behind. For key markets already equipped with pricing tools, AI can help reduce data and dashboard overload.
Another module the Profitable Mix supports value-based pricing by optimizing product portfolios to reflect consumer preferences and value perception. It also evaluates potential cannibalization effects, ensuring that pricing decisions contribute to overall portfolio profitability rather than undermining it. The module helps brands identify the most profitable product combinations and understand the factors that drive profitability, such as consumer demand for quality or sustainable packaging.
The integration of AI-driven insights also supports nuanced brand-level pricing strategies by accounting for price elasticity and market positioning. This helps CPG brands understand how sensitive consumers are to price changes, helping them to effectively implement value-based differentiation.
Source: KPMG Consumer Products State of the Industry Survey 2024
Supply Chain Optimization: Building Resilience in an Uncertain World
In addition to pricing strategies, supply chain resilience remains a major concern for the CPG industry. Labor strikes and port closures can impact distribution networks, while climate-induced challenges are further pressuring supply chains and raw material availability. In response, companies are finding innovative ways to adapt—ensuring operational efficiency and keeping costs under control. This focus on resilience now comes with an increasing emphasis on sustainability, as companies aim to align supply chain operations with environmental and social responsibilities.
A recent survey from KPMG highlights that demand forecasting accuracy remains a significant challenge for CPG companies, with over 36% ranking it as a critical concern hindering their supply chain resilience. Inventory efficiency is another area requiring focus, with almost 46% of respondents pointing to difficulties in maintaining sufficient inventory levels without overburdening logistics. Securing raw materials and ensuring a stable supply at the right price is also identified as a top concern.
According to the survey, digital transformation efforts across CPGs are increasingly focused on achieving real-time supply chain insights. Around 43% of companies have prioritized investments in real-time analytics, which play a crucial role in maintaining service levels and anticipating supply chain bottlenecks.
Source: KPMG Consumer Products State of the Industry Survey 2024
AI plays a vital role here too. AI-driven insights allow companies to anticipate disruptions, assess supplier risks, optimize logistics, and make strategic decisions based on real-time information. By leveraging and integrating diverse data sources, brands can build a more resilient and sustainable supply chain that reduces operational bottlenecks, mitigates cost overruns, and enhances profitability.
E-commerce: A Catalyst for Digitalization
While supply chain resilience is a key focus, another critical area for brands is how they engage with consumers. E-commerce has grown into a thriving segment, driving significant sales, and attracting a rapidly expanding customer base. This allows brands to bypass traditional retail pathways, offering direct access to customer insights and enabling highly personalized relationships. The control over the customer journey, from discovery to purchase, fosters stronger loyalty and facilitates real-time feedback.
A deeper understanding of purchasing behavior and preferences empowers brands to refine their offerings, anticipate trends, and deliver tailored solutions. By combining innovation with customer data, brands are redefining their shopping experience and setting new standards for sustainable growth and customer-centric success.
Within the expanding Direct to consumer (DTC) landscape, the e-commerce segment is expected to drive significant growth, with Data Horizon Research projecting a compound annual growth rate (CAGR) of 15.4%. This rapid expansion underscores the value of investing in digitalization, where brands gain unparalleled access to consumer insights.
The increasing volume of customer information also empowers brands to harness AI-driven solutions for advanced pricing, inventory optimization, and customer engagement. Tools like Revenue.AI’s Tailored Promotion module help brands create targeted promotions that align precisely with the needs of specific consumer segments. By combining AI capabilities with consumer data, brands can achieve hyper-personalization—an increasingly important differentiator in today’s competitive and data-driven marketplace.
The AI Boom: Impact on Revenue and Profitability for CPG Organizations
While the DTC model is unlocking access to sufficient customer data, many CPG companies are still in the initial stages of AI adoption, facing fragmented data infrastructure and slow digital transformation. According to the Gartner Hype Cycle, AI technologies are still in the emerging stage, characterized by high excitement and experimentation. While practical, large-scale adoption remains limited, companies that invest early can avoid the risk of falling behind. Early adoption enables businesses to capitalize on data and unlock AI-driven efficiencies, positioning them ahead of the curve in a rapidly evolving market.
The Consumer Goods and Services industry, once a frontrunner in AI adoption, was projected to lag behind other sectors by 2024, ranking third from the bottom on the Accenture AI Maturity Index. While AI adoption initially surged, many companies struggled to scale solutions due to fragmented systems, competing priorities, or unclear ROI.
Source: Accenture Research
Recent insights from McKinsey validate this market assessment, revealing significant gaps in AI adoption, particularly in evaluating automation opportunities, developing AI strategies, and building generative AI capabilities.
And according to KPMG, 48% of CPG companies are still struggling to integrate their data effectively, preventing them from fully realizing AI’s potential.
To address these challenges solutions like the Digital Module from Revenue.AI offer system integration with a ready-to-deploy engine. The module processes vast amounts of data, both structured and unstructured, using advanced algorithms to clean, organize and unify them. It combines internal data with external sources such as websites, social media, images, videos, and data from third-party providers like Nielsen.
This integration can provide a comprehensive view of market trends and consumer behavior, as well as deliver 24/7 notifications to identify and mitigate supply chain risks, depending on the data and configuration. When combined with the Digital Module, a cognitive Copilot enhances decision-making even further by enabling users to request tailored recommendations. The Copilot allows managers to “talk to their data,” retrieving reports and insights effortlessly through natural language queries. This seamless interaction makes data more accessible, actionable, and aligned with business needs.
Moreover, managers can set customizable triggers that send notifications when specific thresholds are reached, enabling teams to quickly respond to deviations or opportunities and maintain agility in pricing and operational strategies.
Unlike publicly available generative AI models prone to hallucination (generating inaccurate or irrelevant responses), this Copilot operates within a controlled environment, relying on curated, client-specific input data and best practices. Revenue.AI provides robust security measures to safeguard sensitive information, enabling companies to meet regulatory requirements while leveraging AI to maintain profitability and strengthen their financial resilience. All modules are designed to be safe and ethical, having passed rigorous iRISK assessments conducted by some of the largest CPG companies, ensuring trust and reliability in its performance.
Staying Competitive in a Changing World
The CPG landscape in 2025 will be shaped by the need for adaptability. Brands must navigate rising costs, shifting consumer preferences, and increasingly complex supply chains—all while balancing profitability and pursuing market growth. In this environment, AI stands out as a strategic enabler, helping companies achieve key objectives such as value-driven differentiation, enhanced personalization, and supply chain resilience.
By harnessing the power of advanced analytics and generative AI, brands gain access to real-time insights and precise, actionable recommendations. Acting as a trusted Copilot, AI empowers decision-makers to act decisively, delivering the right information at the right moment. This not only enables leaders to confidently achieve their targets but also equips them to anticipate challenges, respond to uncertainty, and maintain a competitive edge in an unpredictable and rapidly evolving market.
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