How to win and keep customers in a cost of living crisis?

The cost of living crisis is a significant challenge, affecting both consumers and businesses across various sectors. As costs rise and disposable incomes shrink, companies must find ways to attract and retain customers while maintaining profitability.

Here we take a look at a few strategies that businesses might consider to offer added value, discounts and promotions without compromising their financial health.

Understanding the Cost of Living Crisis

In the UK, inflation has surged in recent months and, whilst the Consumer Prices Index (CPI) has dropped substantially (currently standing at 2.2% in July 2024) there remains significant pressure on consumers, leading to reduced spending on non-essential services and products, which directly impacts businesses across various industries.

Delivered effectively discounts, promotions and value-adds are crucial tools for businesses, especially during economic downturns. They can help to:

1. Attract New Clients: In service-based industries, discounts and promotions can be an effective way to attract new clients or encourage existing clients to try additional services.
2. Increase Utilisation Rates: For industries like hospitality or professional services, promotions can help increase utilisation rates during off-peak periods.
3. Drive Volume in Manufacturing: In manufacturing, discounts on bulk orders or during low-demand periods can help maintain production levels.

However, while these strategies can stimulate initial demand, they also pose a risk to profitability if not carefully managed.??? When you drop your prices, you get in the same league as companies who compete on price alone and very few are willing to take part in that race to the bottom??

Segmented Pricing for Services

Service-based industries can benefit from segmented pricing strategies, offering discounts to specific client segments rather than across the board. This approach ensures that discounts are targeted where they are most likely to generate additional business, rather than eroding margins universally.

1.??? Example: A legal firm might offer introductory rates for small businesses or startups, recognising that these clients might not be able to afford full rates but could become long-term clients. This approach helps attract a steady flow of business while maintaining higher rates for larger, more established clients.

Off-Peak Promotions

When the doors are open and you’re paying to “keep the lights on” it makes sense for businesses like hospitality, transport, and utilities to offer discounts during off-peak periods helping increase utilisation without impacting profitability during high-demand times. By shifting demand to less busy times, businesses can maintain a steady revenue stream throughout the year and maintain margins at the same time.

Example: A hotel chain might offer discounted room rates during weekdays or off-season periods to attract guests when occupancy rates are typically lower. This approach can help fill rooms that would otherwise remain empty, contributing to overall profitability.

Bundled Services in Professional Sectors

In professional services, bundling can be an effective way to offer clients more value while maintaining profitability. By combining complementary services at a slightly reduced rate, businesses can increase the overall transaction value and encourage clients to use more of their offerings.

Example: An accounting firm could offer a bundle that includes tax preparation, financial planning, and auditing services at a reduced/introductory rate compared to purchasing each service separately. This not only increases the perceived value for the client but also ensures a higher overall spend.

Dynamic Pricing in Hospitality and Transport

Dynamic pricing, where prices are adjusted based on real-time demand, can be highly effective in industries like hospitality and transport. This strategy allows businesses to offer discounts during low-demand periods and increase prices when demand is high, optimising revenue across different market conditions.

Example: Train operators like Virgin Trains use dynamic pricing to adjust ticket prices based on the time of booking, seat availability, and travel demand. This approach allows them to fill seats during off-peak times by offering lower prices while maximising revenue during peak travel times.

Loyalty vouchers/coupons

Discounts and coupons do more than just lower prices; they tap into powerful marketing and consumer psychology principles that can significantly influence shopper behaviour. These incentives create a sense of urgency and scarcity, as limited-time offers push consumers to act quickly to secure a deal. They also leverage the principle of loss aversion, where the fear of missing out (FOMO) drives consumers to make purchases they might otherwise delay or skip altogether.

Moreover, discounts and coupon codes enhance the perceived value of products or services, making shoppers feel like they’re getting more for their money. This perceived value can lead to increased spending, as consumers are more likely to purchase items at a discount. Research supports this, showing that consumers are roughly twice as likely to buy a product that’s 20% off compared to one offered at full price. By strategically using discounts and coupons, businesses can effectively boost sales while creating a more compelling value proposition for their customers.

Turn your focus toward more effective marketing

Price aside, the benefit of “upping” both the quality and quantity of your marketing messages helps you stand out from the crowd. This should, of course, be part of your marketing strategy at all times however, when belts are tightening, people choose where they spend their money more wisely. You can be sure that many of your competitors will simply reduce prices in the hope of boosting sales although, in reality, customers become blind to discounting and will perceive anything different as outside the norm.

Market to your existing customers

One of the most effective and budget-friendly strategies to grow your business during an economic downturn is to re-engage past customers for new sales opportunities or upsells. These customers are invaluable during challenging times because they already have a positive relationship with your brand and are more likely to make repeat purchases. By reminding them of the excellent experiences they've had with your products or services, you can reignite their interest and demonstrate how your offerings can continue to meet their needs.

Moreover, your existing knowledge of past customers allows you to tailor your outreach more effectively. By segmenting your customer base, you can personalize your messaging, whether it's through email campaigns offering maintenance appointments or exclusive promotions. This targeted approach not only re-engages customers you haven't connected with recently but also maximizes your marketing efficiency, helping you maintain profitability even as consumer spending shifts. Leveraging these established relationships can significantly reduce your marketing costs while driving new revenue during uncertain economic times.

Invest in local SEO

Local SEO is one of the most cost-effective marketing strategies for businesses that depend on a specific geographic area for their customer base. Whether you run a law firm, HVAC service, or retail shop, local SEO can significantly boost your calls, leads, and foot traffic without breaking the bank. As more customers turn to mobile devices to search for products and services, optimizing your Google Business Profile (GBP) becomes essential in capturing prime real estate in local search results and connecting with nearby customers actively seeking what you offer.

To enhance your visibility in local search results, start by setting up and optimizing your GBP listing with accurate Name, Address, and Phone Number (NAP) details, as Google uses this information to display your business to relevant local searches. Additionally, uploading plenty of photos and videos to your GBP listing helps build relationships with your local audience by showcasing the value your products or services provide.

Encouraging customers to leave reviews on your GBP is also crucial, as the number of reviews is a key factor in Google's local search rankings. These reviews not only improve your presence in search results but also establish trust with potential customers by highlighting the positive experiences of past clients.

Cost Management in Manufacturing

Manufacturing businesses can offer competitive pricing and promotions by focusing on cost management and operational efficiency. By reducing production costs, businesses can afford to offer discounts without sacrificing margins. This might involve streamlining production processes, renegotiating supplier contracts, or adopting lean manufacturing techniques.

Example: A UK-based manufacturing company might implement lean manufacturing principles to reduce waste and lower production costs. This efficiency allows them to offer bulk discounts to clients while maintaining healthy profit margins.

Value-Added Services

Rather than relying solely on discounts, businesses can enhance their offerings with value-added services that justify their pricing. This approach is particularly effective in professional services and industrial sectors, where the perceived value can significantly influence client decisions.

Example: An engineering consultancy might offer additional project management services or extended support packages at no extra cost. This adds value for the client and differentiates the company from competitors, reducing the need for aggressive discounting.

Leveraging Technology and Data Analytics

Data analytics can play a crucial role in designing effective promotions. By analysing customer data, businesses can identify patterns in client behaviour, preferences, and spending habits. This information can be used to create personalised promotions that resonate with clients, ensuring discounts are targeted and effective.

Example: A software company might use data analytics to track user engagement and offer personalised discounts or upgrades to clients who are underutilising their services. This targeted approach can increase customer retention and lifetime value without broadly reducing prices.

Collaborative Promotions in Service Industries

Collaborative promotions, where businesses partner with complementary companies to offer joint discounts, can help share the cost of promotions while reaching a wider audience. This strategy is particularly effective when cross-referrals can benefit all parties involved.

Example: A marketing agency might partner with a web development firm to offer a combined discount on a complete branding and website package. This collaboration allows both businesses to attract new clients while sharing the promotional costs.

Testing and Gradual Implementation

Before launching large-scale promotions, businesses should always test different approaches on a smaller scale. This allows them to assess the impact on sales and profitability and make adjustments as needed. Gradual implementation reduces the risk of financial losses and helps businesses refine their strategies.

Example: A business consultancy might pilot a discounted service package in one region or with a select group of clients before rolling it out nationwide. This approach enables them to gather feedback and optimise the offer based on real-world results.

The Importance of Communication and Transparency

Communication is critical in managing customer expectations and maintaining trust during the cost of living crisis. Businesses should be transparent about the reasons behind their pricing strategies and promotions, explaining the value they offer and the challenges they face. This openness can help build stronger client relationships and foster loyalty.

For example, a consultancy firm might explain that while they are offering discounts on certain services to support clients during tough economic times, they need to maintain regular pricing on other services to ensure the sustainability of their business. This transparent approach can align client expectations with the company’s financial realities, leading to more understanding and long-term loyalty.

Striking the Right Balance

Balancing discounts and promotions with profitability is a complex challenge, particularly during a cost of living crisis however it is possible to offer compelling promotions that benefit both clients and the bottom line.

By being strategic, flexible, and customer-focused, businesses can navigate the challenges of the cost of living crisis and emerge stronger and more resilient in the long run.

For more top tips and ideas we invite you to join our FREE 30 minute training video designed to ensure you and your teams continue to deliver remarkable customer service. Just click on the link in the comments below.