Why these companies are lowering prices despite rising inflation and looming tariffs

New York (CNN) — Inflation is heating up, a trade war is brewing and American consumers aren’t feeling great about the economy. That’s a toxic mix for businesses.

Inflation rose last month to its highest level since June, topping 3%. Prices at the grocery store remain elevated, with eggs rising 15.2% in a single month, according to January’s Consumer Price Index. Earlier this month, Walmart — widely considered to be a bellwether for the US economy — forecasted slower sales growth for this year. Meanwhile, President Donald Trump’s trade war with China, Canada and Mexico could cost American families $1,200 more per year, according to the Peterson Institute.

And while many businesses are planning to pass those costs on to consumers, some are hoping their decision not to will make them stand out.

As consumers tighten their purse strings, they will become more discerning and competition for their spending will only grow, experts say. Brands will have to stand out. Some companies are now banking on a strategy they say is both good for business and their customers: lower prices.

“There’s never a bad time to lower the price, especially when consumers have been incredibly price sensitive, and will continue to be. I think we’re going to see more brands move along these lines,” said Diana Smith, associate director of client advisor, retail and eCommerce at Mintel, a market research firm.

And price is often what makes the difference. More than 65% of adults say price is the most important factor when choosing where to shop, according to a February survey of more than 2,000 adults, conducted by Mintel.

Consumer confidence in February saw the biggest monthly decline since August 2021, as more Americans worry about inflation, according to the survey released by the Conference Board. That mirrors what the University of Michigan found in its February consumer sentiment survey, which revealed more Americans were worried about what Trump’s plan for massive tariffs on trading partners would mean for prices.

And when Americans don’t feel good about the economy, they usually don’t spend as much money. Retail sales fell 0.9% in January from the prior month, according to the Commerce Department.

But Lalo, a company that makes baby and toddler products, announced last month it was reducing prices first for the first time since the company was founded 12 years ago. Prices were reduced by up to 40% on 90% of its products. For example, a high chair that once cost $235 is now $195. A bib that was $29.50 is now $16.99.

“The bet was that it was going to be good for business, but it started with a bet on our customers. When you can do price reduction, you can accelerate velocity of growth,” said Michael Wieder, co-founder, president and CMO of Lalo.

Wieder says the company was able to find cost savings by negotiating with its supply chain.

“In this environment where we talk about every cost being passed on to the consumer…why can’t we talk about cost savings being passed on to the customer as well?” said Wieder.

Since Lalo lowered its prices, it’s seen sales on some of its lower priced items quadruple, according to Wieder.

It’s a risk

Blue Apron, which has struggled to find its footing in a competitive meal kit market in recent years, froze prices for current and new customers for the next six months, starting in January. It also reduced shipping costs by a dollar to $9.99.

“It’s also something that we can afford to do because we believe in the relationship that we’re building with people, letting them know that we’re actually thinking about them when we make these business decisions,” said John Adler, SVP of Physical Product at Blue Apron.

More than 50% of adults said their perception of a company’s actions and values were just as important as the price of the products, according to Mintel.

“All businesses are trying to figure out how to break that loyalty code today, especially among the younger consumers that are the least loyal,” said Mintel’s Smith.

But quickly lowering prices can have its drawbacks, she added, especially if companies have to raise prices again later on.

“Brands really need to make sure that the lower prices are well thought out and part of a longer-term strategy, rather than just a really quick hit, because that can obviously devalue brand perception if later on they find themselves in a situation where they have to revert.”

The tariff question

Bobbie, a US-based baby formula company, lowered its prices by 15% on all but one of its formulas in December.

“We invested in an American facility, and after about 18 months… we were able to lower our prices. Essentially, it’s cheaper for us to do it ourselves,” said Laura Modi, CEO and founder of Bobbie.

Bobbie invested $140 million and built a manufacturing facility in Heath, Ohio. At the same time, the company was hearing from customers that its formula was too expensive. The company has seen a flurry of new customers since lowering prices, Modi said.

“When it came to it, inflation was also a major issue, coupled with the fact that people clearly voted with their pocket,” said Modi.

Trump last month announced a 10% tariff on all Chinese imports, with tariffs on imported goods from Canada and Mexico set to take effect as early as Tuesday, as well as a plan for reciprocal tariffs on other countries.

Blue Apron says it plans its meals at least six months in advance, so it is somewhat insulated from tariffs.

“While there is this uncertainty around tariffs and even labor supply, we are well insulated simply by virtue of where we are planning our product and how we’re setting up our supply chain,” said Adler.

Wieder said Lalo expects some of its products to be impacted by the 10% tariff on Chinese goods, even though its products under the “juvenile” category were exempt during Trump’s first term. Wieder said the US simply does not have the supply chain infrastructure or quality control to make Lalo’s products. Still, the company is sticking with the lower prices.

“We’re able to stomach (the tariff.) If it continues or it raises over time, at some point you have to look at it. But that’s not our intention,” said Wieder.

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