Creative Business Solutions for Tough Economic Times - Part 3

Now that you know where to find out about they economy and you've determined that it will affect your business, what do you do?

The next step is to determine how the economy will affect your business and how to manage those effects. Consider the following two scenarios:

Problem 1: Supply and transportation prices go up
Obviously when the price of your supplies and transportation costs go up, your manufacturing and sales costs go up, which means you must pass the costs on to your customers. If you are a baker and the price of flour doubles (which it has in some areas), you must now re cost your products and increase your prices. Many consumers are unaware of small increases (i.e. a loaf of bread increasing from $2.00/loaf to $2.25/loaf) but are accutely aware of large increases (i.e. a car for $20,000 increasing to $22,500).

Strategies to Manage Problem 1

• In most cases there will be little or no room to negotiate with suppliers but it is always worth trying. I have a client who had a long-term relationship with a supplier and always paid the catalog list price without question. One day in a conversation with the supplier's rep - they were talking about rising costs - he mentioned that because of the volume of sales over the years, my client was entitled to a discount. Wow - if that conversation hadn't taken place, my client might never have received that discount. Moral of the story - it pays to ask for discounts.
• When you have to increase your prices, a strategy that several of my clients have found helpful is this: give your customers as much notice as possible; convey the news to them in a tone that is regretful but puts the blame where it should be (economy, rising fuel and transportation costs); and encourage them to stock up at the lower prices. This strategy works because your customer has time to get used to the idea, places blame on the faceless "economy" rather than you, the business owner, and gives your customer the impression that you care enough to hold prices down as long as possible for their benefit.

Problem 2: Consumers stop spending
Before consumers start to feel the pinch of a recession they will often start reining in their spending in anticipation of it. This early reaction hurts businesses and can lead to unnecessary panic in the economy. Your job is to find ways to diversify and encourage your customers to keep spending their money in your business.

Strategies to Manage Problem 2
Your job as a small business owner is to find ways to diversify and encourage your customers to keep spending their money in your business. Think from your customers' point of view - what would it take, in this difficult economy, to keep them shopping at your store or place of business.

• Excellent customer service? Above-and-beyond customer service?
• Easy ordering and delivery process?
• Convenience?
• More options?
• Better selection?

You may need to survey your customers and find out. From my personal grocery shopping experience, I am willing to pay a little more when I know that a store is easy to get to, is not cluttered and dirty, and when I know I'll be greeted with a "hello" and a smile. Assess your business and find out if there are any barriers to a great purchasing experience. There should never be, but in these economic times you can't afford for there to be.

Next time, we'll look at the issue: What if the business is just not making it?