As the UK faces increasing economic pressures, consumers and businesses alike are having to make changes to the way they shop and operate. From high inflation to escalating energy prices, rising costs are influencing how consumers spend, and in turn, how businesses of all sizes – including SMEs – perform.
Our latest research1 shows that 52% of SMEs surveyed say their customers are increasingly driven by price, whilst a further 68% reported that customers are looking for ways to cut back on their spending, highlighting the impact the current environment is having on buying habits.
Encouragingly, the research finds that SMEs are proving agile in response to these challenges, with three quarters of respondents (75%) pivoting their plans to better service their existing customers over the coming months. But, with 60% reporting that customers’ expectations are increasing due to the challenging economic conditions, the pressure remains on how they best navigate the headwinds ahead.
Diversifying to drive sales
Whilst putting up prices to counter higher costs may seem like an obvious step to take, there is also a risk this could damage relationships with customers, leading them to look and spend elsewhere.
Our research found that SME owners and leaders are responding proactively – for example, nearly a quarter (23%) plan to launch more special offers in a bid to remain competitive in the current market. The survey also shows SMEs are focused on broadening their customer base, rather than just increasing the spend of their existing customer base. To help attract new customers, the majority of respondents said they were diversifying their customer offer (54%), improving customer communication (37%), and providing additional services (30%).
Cash(flow) is king
It’s important to acknowledge that it’s not just consumers impacted by the rising costs of goods and services – it can have a negative impact on SMEs, squeezing margins and presenting serious challenges to the effective running of their business. In times of economic challenge, they must stay laser focused on managing their cashflow.
Over a quarter (28%) of SMEs state they are looking at additional ways to improve their cashflow, and there are a variety of avenues businesses might consider that help achieve this. For example, invoice software can reduce the time it takes to collect payments; negotiating supplier terms can extend payment deadlines – helping hold on to cash for longer and improve working capital. Finally, revisiting supply chain strategy is another avenue SMEs could consider, working with more local businesses to avoid supply chain disruptions or selecting those who may offer better payment terms.
It’s no secret that it’s been a tough couple of years for the nation’s SMEs. Just as they find themselves in the recovery phase of the pandemic, they have once again had to pivot and adapt due to the pressures of the current economic landscape. But many remain upbeat; three fifths (61%) state that they expect a growth in sales over the next 12 months, with two thirds (66%) describing their business as being in ‘good shape’.
In the coming period, it’s clear that SME’s ability to be agile will be one of their biggest strengths. Ultimately, those that scrutinise their operations, proactively take action to adapt to current challenges, in tandem with going the extra mile for their customers, will secure a competitive advantage and be best placed come out on top in the long run.
1 American Express and Opinium surveyed 1,008 SME decision makers, including more than 200 at small businesses of 10-49 employees in the UK. Fieldwork was undertaken between 27th May-6th June 2022.