As we head into Q2, companies are in the unenviable position of having to plan around recently announced tariffs by the Trump Administration and threatened retaliation from targeted countries. On April 2, President Trump announced a 10-percent across the board tariff for all trading partners, with additional tariffs on countries where the U.S. sees a trade imbalance. Those tariffs range from 34% on Chinese imports, 32% on Taiwan, 25% on South Korea, 24% on Japan, and a 20% tax on goods coming from the European Union.
The Trump administration previously implemented or threatened tariffs on numerous products worldwide, including steel and aluminum. Some countries, notably Canada and China, have implemented countermeasures, and the EU is teeing up its own retaliatory tariffs targeting U.S. goods.
With this latest announcement from the U.S. and nations worldwide drawing up their plans, the amount of additional taxes companies might pay on products or raw materials to make products will be unpredictable. Not only does this impact the price of goods, it can also impact the supply chain, creating even higher prices as well as potential shortages. This makes mitigating tariffs a critical focus for businesses looking to stay competitive and protect their margins.
In January we laid out the advice Arrowhead is giving to our clients as they try to navigate potentially choppy waters ahead. Much of that advice remains the same and is becoming more urgent as consumer confidence is beginning to nosedive. The Conference Board’s Consumer Confidence Index® fell 7.2 points in March, after declining 7.0 points in February. It marks the fourth decline in as many months.
Likewise, the University of Michigan consumer sentiment survey for the U.S. fell to 57.9 in March, down from 64.7 in February, marking a third month of decline, and the lowest level since November 2022. The University of Michigan indicated consumers were concerned about personal finance, business conditions and labor markets, among other things.
Building a Promotions Strategy in 2025 for Mitigating Tariffs
As the prices of consumer goods rise in response to tariffs, consumers will inevitably start to make careful choices about where and how they spend their money. This is where a smart and nimble promotions strategy becomes essential. By adapting quickly through promotions, businesses can retain their current customers while also attracting new ones, remaining competitive while alleviating some of the pain for their customers.
CPGs essentially have two levers to pull when trying to retain customers looking for value. You can work to create loyalty within your customer base, and you can offer discounts to make your product more competitive. This is not an either/or proposition for companies – it’s often a matter of knowing which lever to pull and when, without relying too heavily on one or the other.
Coupons provide an immediate remedy on price, and often customers perceive them the same way they do any other discount. It gives them a straight comparison for a similar product with no discount, and for products impacted by tariffs, coupons can provide a temporary reprieve on any price hikes that come when these additional taxes are passed on to the consumer.
Consumers tend to view rebates as more of a loyalty play – requiring an additional step of submitting documentation to receive the rebate. It’s a win for the shopper who follows through to get the rebate, and a win for the seller who retains or even wins a new customer. Because not every shopper follows through with required documentation, rebates can be a lower-stakes method for companies to attract consumers.
Working with a partner who can help you be nimble with your promotions strategy is the smartest move going forward in 2025. Plan for the year, but understand the need to be flexible as policies, and opportunities change. Arrowhead offers our clients a number of flexible strategies, including a quick to market platform that allow our clients the ability to spin up promotions efficiently and inexpensively in order to take advantage of rapidly changing market conditions.
Counter Tariffs by Strengthening Customer Engagement
The economy will ultimately decide whether tariffs make good policy or not. Some sectors are cheering an opportunity to negotiate a trade policy more favorable to their businesses. Brands that rely on numerous supply chains to get their finished products into the hands of consumers will follow a more complicated road. Businesses will have to account for how changing tariff policies impact their supply chain as that could lead to delays or even shortages in both the near and long term.
What is clear is locking into the tried-and-true promotions strategy that worked for you in 2024 might be less effective moving forward in 2025. We recommend continuing programs that build customer loyalty, while simultaneously targeting discounts that can quickly take advantage of an opportunity or mitigate a new challenge. Whether you have in-house expertise or a partner that can help you with quick to market promotions, customer engagement is more important than ever, as brands worldwide strap in for the complexities that lie ahead.
