In Tough Times, Businesses Emphasize Loyalty

In the face of economic uncertainty, Canadian small businesses are focusing on customer experience and employee satisfaction to drive decision-making around managing rising costs, according to a new survey.

The quarterly American Express Small Business Monitor reveals small business owners find significant value in investing in customer and employee loyalty over short-term financial gain, with almost half (47%) agreeing they would rather reduce profitability than risk losing customers due to price increases.

Alternatively, they’d rather reduce overhead costs in general (52 per cent), become more stringent regarding accounts receivable in order to improve cash flow (48 per cent) or reduce travel and entertainment budgets (36%) in order to control costs. Only 20 per cent were willing to reduce perks for customers, 18 per cent were willing to reduce perks for employees, and 12 per cent were willing to reduce staff wages or benefits.

“Small business owners see their employees as critical to the success of their business, and their customers as the lifeblood of their franchise. We can now see even more evidence of this mind set in challenging and unstable economic time,” says Eric Nielsen, vice-president and general manager of American Express Canada’s Small Business Services division.

“What’s very interesting is that instead of jeopardizing employee or customer loyalty when it comes to managing rising costs, business owners’ initial inclination is to absorb the challenges the economy poses and respond by making changes to mitigate these difficulties and improve their cost efficiency.”

Managing Price Increases is a Balancing Act
When changes must be made that could affect the customer, including price increases, the Monitor shows that 78 per cent of small business owners have taken steps to make price increases more palatable. This includes explaining the reason for the increase (61 per cent), extending payment terms (18 per cent), and offering discounts for paying early (16 per cent). Of those who did take steps to explain raising costs, over half (57 per cent) said explaining the reason for an increase has been most effective. Further, more than half of the small business owners who did raise prices (54 per cent) say they experienced little or no resistance from customers.

“Many small business owners responded by saying they would prefer to carry the financial burden of rising costs, even if it impacts their own profitability. However, the most uncertain of times can create the opportunity to be innovative and adopt new pricing strategies. Business owners are having success when they support the new price points with tactical customer communications explaining the rationale for change, or strategic enhancements to their service experience,” says Nielsen.

The primary reason for not increasing prices in response to rising costs, according to 38 per cent of respondents, is the need to stay competitive. Fifteen per cent say they won’t raise prices because they believe customers won’t understand or that they would lose sales if they did so.

In terms of the causes for potential price increases, the culprits are not surprising. Over the past year, businesses have experienced above normal price increases in various areas, including gasoline/diesel fuel (78 per cent), heating oil/natural gas/electricity (40 per cent), travel (37 per cent), and insurance (34 per cent). Of these, small business owners indicated that the area of greatest concern is gasoline/diesel fuel (52 per cent).

Additionally, supplier price increases (68 per cent) have had a negative impact on profitability and more than half (51 per cent) of small business owners say they have switched to a competing supplier with a lower price as a way to mitigate the impact.

In Turbulent Times, SBOs Are Confident
Still, the risks and challenges that accompany turbulent economic times are greatly outweighed by the rewards and opportunities that come with small business ownership, 83 per cent of Canadian small business owners reported. And nearly three-quarters (74 per cent) believe their companies are financially flexible enough to weather another recession.
Small business owners are growing increasingly confident about the financial state of their business. They feel that their financial position is improving and are hopeful it will continue to progress in the future. In fact, nearly half (47 per cent) of those surveyed report an improvement in their business’ current financial position, which is up 14 points from last quarter (33%), the highest percentage of improvement reported by small business owners in the last year.

{advertisement}While the majority of small business owners continue to be risk averse, more are willing to take risks today than they were three months ago (28 per cent, up from 22 per cent). Perhaps more interestingly, small business owners are much more willing to take risks during an economic downturn versus a more stable economic time.

“Getting new customers and keeping existing customers will always be the number one priority for business owners.  It’s even more important during times of economic uncertainty that business owners continue to refine and enhance their business practices to remain flexible, stable and open to taking well calculated risks,” says Nielsen. “Risk taking is intrinsic to being in business for oneself, and business owners are generally very well calibrated in terms of assessing the risk vs. reward tradeoff.”

About the American Express Small Business Monitor

Between July 22 and August 9, 2011, Rogers Connect Market Research and Client Services, (RCMRACS) Rogers Publishing Ltd., conducted an online study on behalf of American Express Small Business Services with 720 Canadian small business owners employing between two and 100 people. The margin of error for the total sample is +/- 3.5 per cent, 19 times out of 20. In order to ensure the results are representative of the entire population of small business owners in Canada, the data have been statistically weighted for small business by region according to Statistics Canada. Respondents were located across Canada and came from a variety of industries, including health, social services, education, tech, sales and skilled trades.

About American Express Small Business Services
American Express Small Business Services (SBS) is dedicated exclusively to the success of small business owners and their companies. SBS supports business owners with exceptional service. With tailored products and services, the team delivers purchasing power, flexibility, control and rewards to help customers run their business. Specifically, business owners can leverage an enhanced set of products, tools, services and savings, including charge and credit cards, robust online account management capabilities and savings on business services from an expanded lineup of partners.