With limited financial resources, SMEs can often find themselves struggling to absorb the costs associated with inflation, potentially leading them down an unwanted path of price increases and lost customers.
This leaves SMEs struggling with the eternal question: pass on our increasing costs to our customers, or continue to absorb as much of it as we can? With the end of the financial year just around the corner, here are five focuses for SMEs struggling to survive in the face of ever-increasing inflation.
Get a grip on price elasticity
Price elasticity refers to how sensitive customers are to price changes. If customers are highly price-sensitive, even a small price increase can result in a significant decrease in demand.
By analysing price elasticity, SMEs can make informed decisions about pricing to strike a balance between profitability and maintaining customer loyalty. If your product or service is unique, highly sought after, or incredibly convenient, you are more likely to hold onto loyalty throughout a price increase. Customers are willing to pay more for products or services that they perceive to be of higher quality, so always consider the perceived value of the product or service when determining the right price.
On the other hand, if your competitors are offering a very similar product or service for a cheaper price, then your customers will inevitably switch. For example, bread and milk are always priced competitively in supermarkets because they are everyday purchases with a large number of competitor brands, so they are much more sensitive to price changes.
By conducting market research and monitoring customer buying patterns, SMEs can gain insights into the price elasticity of their products or services. This analysis will allow for more insightful, data-driven decisions about pricing, considering factors such as production costs, competition, and customer preferences. The ultimate goal is to create a pricing strategy that maximises profitability while minimising the risk of customer attrition due to unfavourable price increases.
Step up with value-added services
In addition to raising prices, SMEs can offset the costs of inflation by offering value-added services. These services can enhance the customer experience and differentiate the business from their competitors.
Providing free delivery, implementing a loyalty program, or offering personalised after-sales support are just some of the many ways that SMEs can make themselves more appealing to customers.
Exclusive content, resources, or information in your area of expertise is another great way to provide a value-added service. This can include educational materials, industry insights, or specialised guides.
By providing additional value, SMEs can justify their prices and foster customer loyalty. Customers are more likely to perceive the SME as providing a comprehensive solution rather than just a commodity, and the positive word-of-mouth generated by satisfied customers can attract new customers and help withstand the challenges of inflation.
Customer experience is paramount
Inflation and economic woes should never detract from providing exceptional customer service. In fact, focussing on customer service and improving the end-to-end experience becomes even more crucial during an economic crunch.
When times are hard, a previously loyal customer can switch to your competitors without a second thought. As prices rise, customers are far less willing to spend money and are significantly more price-sensitive. As a result, perfecting the customer experience becomes even more critical, with exceeding expectations paramount.
SMEs should go above and beyond to meet and exceed customer expectations. Whether it’s quick turnaround times, providing detailed product information, sourcing unique products that competitors do not offer, or being responsive to feedback, SMEs must do everything they can to cultivate loyalty and build long-term relationships with their customers.
Change is here to stay, so embrace it
The ability to adapt to new challenges is crucial for the survival and growth of SMEs in an ever-evolving economic landscape. This might involve reevaluating and adjusting business operations, diversifying product and service offerings, or refining marketing strategies.
Adaptation is essential for staying competitive and meeting the changing needs of customers – because like it or not, inflation is not going anywhere soon. The good news is that by embracing change and remaining agile, SMEs can position themselves for success in the face of inflation.
Source: https://dynamicbusiness.com/leadership-2/entrepreneur-profile/entrepreneur-advice/survival-guide-for-smes-in-the-face-of-inflation.html