Right now, as a country, and as people, Australia is in turmoil. There is an underlying feeling of anger and dread permeating society. We see it when people fly off the handle at small things. We see it in the loss of our ability to show empathy and compassion with others who disagree with us.
We are seeing a slow down in the economy for a number of reasons too, and this is affecting most industries. And it should be no surprise. I mean, in the last 12-18 months we’ve seen:
- The largest increases in interest rates over an 18 month period ever. With the average loan $722,000 in NSW, that means that the monthly repayment of $5,578.00 is $2,725.00 more expensive per month than when interest rates were 2.5%.
- Significant increases in fuel prices – from an average of 129cpL in 2020/21 to an average of 200cpL in Nov 2023 (Source: ACCC and Australian Institute of Petroleum) This is an increase of over 55%.
- Insurance – Significant increases in premiums, particularly for home insurance.
- Electricity prices – We’ve had several years of large increases, with over 50% increases in 2022, followed by additional increases in 2023.
- Food – regardless of what headline stats say, we’ve had significant increases in food costs. A tub of butter which was $4.80 18 months ago now costs $7.00. A frozen pizza which cost $5.80 18 months ago is now $9.00. Thats close to a 40% increase. Yet apparently food inflation is only 10-14%?
The only reason house prices are holding is because of the government has increased migration, and production of dwellings isn’t able to keep up with the demand for housing.
According to recent articles, large sections of the population are in a negative cashflow situation, where their outgoings are more than their earnings, and this is no surprise.
What is worse is that data from the ABS shows that if businesses had increased their prices in line with their actual costs, inflation would have stayed within acceptable levels, and interest rate increases wouldn’t have been required.
So right now, consumers are being punished with interest rate increases to control inflation they actually have nothing to do with.
How does this affect business?
With all of this additional financial pressure on the household budget, something has to give. Naturally, people will have to cut costs, and find smarter ways of doing things.
The first thing they will do is cut discretionary spending. This has been happening for a while already. Eating out, and the morning coffee is one of the first casualties as people seek to save money by bringing coffee to work, and packing lunch.
When this isn’t enough, next comes spending on holidays. People will stay closer to home, and avoid travelling as far. We’ll see more of the staycation as people look to free activities and to stay local rather than spending money on accommodation.
When these things have been done, people will turn to DIY projects to keep busy and save time, but renovations and anything deemed non-essential will be cut.
If the budget doesn’t go far enough, then things like streaming services and other niceties will be cut. Non-essential assets will be sold (like caravans, newer vehicles etc), as people try to build up cash reserves to ensure they can continue to meet financial obligations.
We are seeing all of this now. And it is affecting all businesses. So how do you manage this? Here’s 3 simple tips for now:
- Invest in your existing customers
- Manage price sensitivity – Value is key
- Point of difference matters
Invest in your existing customers
There is an old saying that its cheaper to keep an existing customer than acquire a new one. What you need to do now is leverage and connect with your existing customers. Engage them – find novel ways to communicate and connect with them. Acknowledge how things are. Find ways to offer them value. Make sure you have systems to make the most of every lead that comes in, whether it is going to result in a sale or not. You’d be surprised at how many businesses are terrible at this.
Manage Price sensitivity
There is no doubt that people will be more price sensitive at this time. You need to be aware of that. You do this by focusing on value. You need to work harder to justify the price. But your competitors will do this too, so the trick is to ensure you offer value compared to them. Try to avoid competing on price, but make sure your product is exceptional value for the price. Adding extras, or even simplifying products could be the way to go to drive the outcomes you want. You must have your finger on the pulse here – if you get it wrong it will hurt.
Point of difference matters
This is the time where you need to really think about your point of difference. Yes, an emotional connection with a brand is important, but you need to work harder on the functional or tangible benefit to the consumer. And that benefit must matter to them. Its great if your product is technically the best in market, but WHY does that matter to the consumer? If something half the price will perform the same job, then you need to reinforce why. For a high end product, this might be more ease of use, status, or another benefit, but you must be clear, and you must be real.
I hope these tips help you navigate time ahead. If you’d like to chat further, please reach out to me at [email protected]