Inflation is a challenge for all businesses, but the sting is especially painful for (SMEs. With limited resources, they can find themselves struggling to absorb costs associated with inflation, potentially leading them down the path of price increases and lost customers.
This leaves SMEs struggling with the eternal question: pass on increasing costs to customers, or continue to absorb as much of it as possible? Here are five focuses for SMEs to survive in the face of 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 decrease in demand.
By analysing price elasticity, SMEs can make informed decisions about pricing to balance profitability and 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 will pay more for products or services they perceive to be of higher quality, so consider the perceived value of the product or service when determining the right price.
On the other hand, if your competitors are offering a similar product or service for a cheaper price, then your customers will inevitably switch. For example, bread and milk are always priced competitively because they are everyday purchases with many competitor brands, so they are more sensitive to price changes.
By conducting market research and monitoring buying patterns, SMEs can gain insights into the price elasticity of products or services. This analysis allows for 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 inflation by offering value-added services. These services can enhance customer experience and differentiate the business from competitors.
Providing free delivery, implementing a loyalty program, or offering personalised after-sales support are just some of the 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.
By providing additional value, SMEs can justify their prices and foster loyalty. Customers are more likely to perceive the company as providing a comprehensive solution rather than just a commodity, and the positive word-of-mouth generated 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.
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 critical.
SMEs should go above and beyond to not only meet but exceed customer expectations. Whether it’s quick turnaround times, providing detailed product information, sourcing unique products that competitors don’t offer, or being responsive to feedback, SMEs must do everything they can to cultivate loyalty and build long-term customer relationships with .
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 – 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.
