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Surviving economic downtime as a small business

Tunji adegbite

As inflation continues to rise amid deteriorating economic conditions in Nigeria, businesses are struggling to stay afloat and consumer purchasing power is declining. Recently, a baker informed his customers that he was going to shut down his business and lay off more than 25 employees due to rising operating costs and the resulting drop in profits. “There is a limit to the amount of losses the business can absorb or to the increase in product prices. “

The situation of this baker is unfortunately not one-off; many SMEs struggle to remain profitable during the economic downturn. These small businesses do not have the cash reserves to adjust or absorb losses endlessly compared to their larger counterparts. Can small businesses survive and even grow in a tough economy?

In today’s post, which marks a year of sharing my business ideas on ThisDay, I’m going to share four steps your business should take into account during times of economic downturn to survive and maybe even break down. develop :

Focus on basic skills and introduce added value streams

Look at the numbers – what sells best with a low cost to market and / or produce? Come back to products and / or services that are already working very well with your customers. Using sales data to determine commodities is crucial. It provides an unbiased view; business owners often have their favorite products or products they think should work well and may not match actual consumer demand.

During this time, rationalize all other less profitable product lines that require expensive support. Focus your efforts on producing and promoting products that are guaranteed to stand out on their own to past, current and potential customers.

After identifying the core products, increase revenue streams by adding VIP and “budget” versions of the core product or service. One aspect of this concept is bagging, which reduces the size of products into more miniature and economical individual packages. However, companies rarely implement the other side by introducing luxury or perceived luxury versions.

Let’s look at the case of a popular bakery – its most popular product is cake. In addition to its standard cake price list, the bakery is introducing a flat cake size / design for 5,500N. Customers can show up and buy a good tasting second-hand cake for less than 6,000N. to pre-order. On the other hand, they have also created specialty cake designs at an additional price that meet the specific design or flavor requirements of each customer. With both ends of the market covered, this bakery can maximize all potential revenue streams from its most popular product, second-hand cakes.

Make small cuts early and protect cash flow

Business conditions during an economic downturn can lead to slimmer profit margins and difficulty maintaining healthy cash flow. Low budget items add high costs even if they are not significant in themselves. Audit all monthly expenses and eliminate all unnecessary expenses – give up services, resources, idle equipment or subscriptions without which the business can operate.

Rethink the value the business derives from the assets it owns – consider renting additional unused office space or delivery infrastructure for additional income. Run the business on a pay-as-you-go model. This means that you make all non-essential business expenses based on the corresponding sales. Limit the use of the reserve to settle non-essential invoices and renegotiate supply agreements to obtain competitive prices, discounts or flexible payment terms on essential items.

Adapt your pricing and marketing strategy

A corporate pricing strategy during an economic downturn should play into consumer psychology. Most consumers react to discounts while getting good value for money. A study by Kahneman and Tversky on choices, values ​​and settings found that when presented with two scenarios:

Case 1: a 10% discount on an item resulting in a $ 5 reduction

Case 2: a 5% discount on an item resulting in a $ 5 reduction

A 10% discount sounded better when it shouldn’t since the quantity value received is the same. This is because discounts provide additional utility, aside from the acquisition utility gained when exchanging money for the product or service. This additional transaction utility appeals to the psychological aspects of the consumer’s state of mind and makes the discount (plus) special.

While your marketing shouldn’t be pushy or insensitive to tough times, your marketing content should highlight the immediate benefit of consumer action. Use precise language and calls to action (CTAs) to allow the consumer to quickly connect and feel psychological ownership of the product, building on a perceived loss of value / opportunity if no action is taken .

Improve the customer experience

As discretionary spending decreases, consumers will reduce their spending, and it is much more difficult to convince new customers than to keep existing customers. As economic constraints persist, companies should rethink their marketing strategy; focus on retaining and increasing customer lifetime value through targeted marketing and positive customer experiences.

Encourage your customers to share their experiences and use social proof to drive your marketing efforts. The benefit of this strategy is that customers share their experiences, and word of mouth / referrals are an inexpensive way to get more customers to try your products.

Depending on the type of business, adding loyalty points and rewarding loyal customers can be a way to ensure customer retention. For service companies, reach out to former customers, understand why they stopped buying, and implement strategies to get them to re-engage.

The economic downturn has been brutal for any small business, but planning and staying strategic is essential to capitalize on this opportunity. Assess the risks to your business and market sector, identify your most critical suppliers and distributors, and streamline costs as much as possible.

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