While the price of common items like gasoline and groceries make for good water-cooler conversation, it’s not often that we hear inflation mentioned in everyday small talk. So, why so much talk of inflation lately? It’s because the U.S. economy has seen record levels of inflation over the past 12 months, and it’s got everyone paying attention. The good news? Economic indicators show that the worst of inflation is behind us.
Let’s break down what inflation is, what it means for your small business, and what you can do about it.
What is inflation?
We turned to the experts—the International Monetary Fund (IMF)—for an official breakdown of what inflation is and how it’s measured. According to the IMF, inflation is the “rate of increase in prices over a given period of time.” It is typically expressed as the percent increase in prices of common goods and services over the last twelve months. The metric is measured by government agencies who track price changes in a “basket” of commonly purchased goods, like eggs, milk, clothing, and housing expenses like rent and mortgages.
Historically speaking, annual inflation has hovered between 0-4% for most of the last 40 years. As of February of this year, the Bureau of Labor Statistics reported that the annual inflation rate is currently at 7.5%—the largest increase since 1982. This means that the price of anything we buy today costs (on average) 7.5% more now than it did a year ago. Prices in some categories, like gasoline and used vehicles, have risen even more sharply in recent months.
The good news? We’ve probably seen the worst of it. Month-over-month inflation was up 0.6% in January, about the same as December of 2021, but this is notably lower than last October when inflation rose 0.9% month-over-month. It appears month-to-month inflation has peaked and will hopefully normalize over the course of the year as supply chains and labor markets find more stability.
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How inflation is affecting small businesses
You’ve probably already seen higher prices affecting your business over the last two years. In fact, 92% of small business owners report that the cost of supplies or services needed to run their business has increased since the pandemic started. Business owners and consumers alike have felt the pain of rising prices on a daily basis over the past several years as the global economy has reacted to the COVID-19 pandemic. The prices of supplies, utilities, rent, and wages have risen steadily, and an estimated 63% of small business owners have raised their prices as a result.
Small business owners are also seeing changes in customer behavior because of inflation. Consumers are equally concerned about rising prices and are preparing now by looking for ways to save. Small business owners report that customers are spending more frugally, being more selective with their purchases, and looking for ways to save money.
Source: Business.orgThese customer concerns present excellent opportunities for local businesses to build trust and long-term loyalty with their customers. Let’s take a look at 3 customer-friendly ways small businesses can react to customers’ inflation worries.
3 customer-friendly ways small businesses can react to inflation
Stand out from the crowd with a stellar online reputation
We know that customers are being more selective with their spending, and they will be looking to make every dollar count when making a purchase. Make it easy for them to trust your business—even before they meet you—by having a great online reputation. Research shows that 75% of all clicks and calls on Google go to the top 3-5 search results. Is your business showing up there?
Google considers the following metrics when prioritizing businesses in Google searches:
- Overall star rating
- Quality of reviews
- Quantity of reviews
- Frequency of reviews
- Business response
We can expect consumers to be more discerning with their money this year. They’ll be looking to spend only with the best vendors they know they can trust. By consistently collecting unbiased third-party reviews on your Google Business Profile or Facebook page with an online reputation tool like Podium, your business will stand out as the clear choice online and continue to win business despite inflation worries.
Respond quickly to customer inquiries
The little things go a long way, and something as small as how quickly your business responds to inbound leads can make or break your relationship with those prospects. Did you know that inbound leads are 25% more likely to convert to a sale when they’re responded to in under 15 minutes? This year more than ever, consumers want to feel heard and understood when they’re shopping, and they’ll be more willing to spend with a business that is responsive to their questions.
With a communication platform like Podium, responding to customers is as simple as sending a text. With Podium’s consolidated Inbox, our customers are able to respond to 41% of all inbound leads in under 15 minutes. That’s over 200,000 leads per week across our customer base that are being handled in 15 minutes or less. This year, prioritize your customer response time as a way to build trust with your customers and earn their loyalty.
Invest in customer experience—be the easiest to do business with
Above all else, convenience is top of mind for local consumers this year as they look to pull back on discretionary spending. According to Podium’s 2022 State of Local Business research, ease of doing business is the top factor that determines whether a customer will transact with your business. Consumers said the following about ease of doing business:
- 53.5% say it’s a top reason they choose to work with a local business
- 57% say it’s a top reason they refer friends and family
- 60% say it’s a top reason they repeat their business
When considering how to increase convenience at your business, start by evaluating your customer journey—how do most customers find you? How do they communicate with you? And what makes them come back to your store or office? Look for opportunities to increase convenience at each step in the journey if you want to see repeat visits climb and customer referrals grow.
Make your business the easiest to do business with by investing in customer experience and communication tools like Podium. Podium allows you to seamlessly connect your website with your store or office, gather high-quality reviews, collect payments, and market to your existing customers—all on the communication channel customers prefer: text messaging.
