With rising inflation and interest rates, conventional economic theory suggests your customers will start to tighten their grip upon their wallets.
Fortunately, the plethora of special government payments and stimulus measures that have been floating around of late should ensure it is not a quick turn-off of customer expenditure.
However, as the pandemic spend tap starts to close over the next few months, it is time now to focus on the discretionary spend budget of your customers.
I like to think of customer spend in three simple categories or levels:
- need to have
- like to have
- hope to have.
Your customers will start to question what, how, when, where and why they spend money at each of these three levels.
So, how do you ensure you gently extract as much as possible of your customer’s overall discretionary spend budget?
As a starting point, you need to review all the products and services your business offers and categorise them as they now are within each of the above levels.
In simple terms, keep in mind that:
‘Need’ to haves are usually essential products for day-to-day living like food, clothing, fuel etc.;
‘Like’ to haves are usually linked to convenience and comfort like home delivery, leisure, entertainment etc.;
‘Hope’ to haves are strongly linked to your customer’s ego, pride, dreams, jealousy or a range of other politically and socially incorrect terms I would like to tell you about, but won’t.
A tightening of your customers’ discretionary budget spend means they will shift ‘down’ their spend categories from hope, to like, to need.
How do you counter this?
Firstly, label (metaphorically) each of your products or services as ‘need’, ‘like’ or ‘hope’.
Secondly, think about how you can shift your customers’ perception of your products or services down the spend categories of hope to like to need without them realising it. As you will see in the example below, this is best achieved by focusing on convenience and time.
To target discretionary spend, you need to review how you sell and promote your products and services and utilise the what, how, why, where and when decision criteria spinning around in your customers’ heads.
For example, For the ‘what’ of your product and service, focus on why your customer needs it now! For the ‘how’, make it easier through free or discounted delivery so their needs are immediately met. For the ‘why’, push the personal, friendly customer service you can offer to create and meet a hassle free, convenient need. For the ‘where’, your business location should nowadays be irrelevant with the advent of online selling. So again, focus on turning a like into a need with the ‘when’ of immediate delivery.
So, the journey point I want to bring you to via the above is that the pandemic has brought forward a quantum shift from on-premise to online spend and elevated time and convenience buying criteria to new heights.
As customer belts tighten and shopping time decreases as people take on additional work or jobs, their discretionary spend becomes more focused.
You must target this spend by adjusting the categories that consumers see that your products and services currently fit – primarily through improving the time and convenience to meet of each of their ‘need, like and hope’ to haves.