It is easy, when facing the pressures of inflation, to skimp. However, when we skimp, we risk losing customers and putting the company in even more jeopardy.
SKIMPFLATION
Many companies are feeling the impact of rising interest rates. They are taking steps to protect the business given the uncertainty around whether the economy will go into recession. Rising interest rates are only one of the issues businesses face; the other factor is the lack of staff to meet demand.
These two factors cause businesses to turn inwards and develop a survival mentality that reduces spending and investment in technology, training of staff and actual staff numbers.
When this happens, businesses can fall into the trap of skimpflation.
WHAT IS SKIMPFLATION?
Skimpflation occurs when companies skimp on goods and services to help manage inflation and rising costs [1]. This short-term strategy seems necessary at the time but can lead to more significant challenges for the business, as will be explained.
CUSTOMER SKIMPFLATION
Businesses are not the only ones looking at ways to skimp on things to manage inflation. Customers are also looking at what they can cut back on and what subscriptions they can cancel to enable them to survive rising interest rates and the looming recession. Price now trumps loyalty for many clients and customers.
A survey of 1,600 customers by UJET found a significant shift in their behaviour arising from skimpflation. The survey found that
- 73% of customers will cut providers and subscriptions that offer the worst user experience.
- 87% said they will spend less or stop spending money altogether with brands that skimp on customer service; &
- The top areas where customers are experiencing skimpflation from business are quality of service (60%), wait times (58%) and expertise and helpfulness (54%) [2].
THE DANGERS FOR COMPANIES WHERE THEIR SKIMPING COLLIDES WITH CUSTOMER SKIMPING
When businesses begin to skimp on goods and services, they often start to cut back or reduce spending on technology, staff training and the number of staff available to assist clients.
For the customer, this means increased wait times for assistance, a decline in the quality of service and a reduction in assistance due to a lack of staff. These three factors cause clients to cut their spending with the business.
WHAT ABOUT CUSTOMER LOYALTY?
It is easy for companies to fall into the trap of thinking customers will understand their need to skimp on service quality and wait times and remain loyal. The data indicates this is wishful thinking.
Research indicates that:
- One in six online shoppers will abandon a purchase because of a single bad experience.
- 53% of respondents left a brand in the past 12 months after a single bad experience [3].
This data is consistent. Emplifi, a customer experiences technology provider, surveyed more than 2,000 consumers from the U.S. and the U.K. They found that 86% of customers will leave a brand they were loyal to after two or three bad customer experiences and roughly half (49%) of consumers had left a brand they had been loyal to in the last 12 months [4].
This demonstrates that businesses cannot rely on customer loyalty if they are skimping on service delivery and wait times.
SKIMPFLATION FOR SOME AND EXPANSION FOR OTHERS
For some businesses, the skimpflation provides an opportunity for expansion and capitalising on their market differentiation.
Justin Robbins, who led the UJET research, stated that "consumers are clearly saying that CX is a top factor determining how and where they spend money. Smart, customer-centric businesses recognise this." [5]
Many businesses believe they focus on customers, but what can they do to step up the customer focus?
There are three things.
- Step up customer engagement.
- Truly listen to customers.
- Get employees on the same page [6].
Steve Jobs said companies had to start with the customer experience and work back to the product rather than the other way around.
INCREASE RATHER THAN SKIMP ON CUSTOMER ENGAGEMENT
This is the time when companies can step up their engagement with customers. Research has found that 95% of consumers want to help brands improve, but 75% believe that brands do not listen to them.
Companies have an untapped resource in the help and assistance clients want to give them. However, businesses are so focused on the business they are not listening to who the business is for. Steve Jobs said companies had to start with the customer experience and work back to the product rather than the other way around [7].
The importance of customer engagement must come from C Suite leaders and must be demonstrated rather than just spoken about. Many business owners and directors never actually talk to consumers because they are too busy. Leaders have to set an example in communicating with consumers and explaining to staff why they are doing so.
LISTENING TO CONSUMERS
It is easy to fall into the trap of thinking we are listening to consumers because we send out client satisfaction surveys. While surveys can provide helpful information, many consumers see them as a lazy and detached way for the company to act as if it cares [8].
While useful, looking at spreadsheets, data, and surveys is not nearly as effective as finding ways to speak with and listen to consumers. Why? Because we need to find out how consumers feel about our brand.
THE IMPORTANCE OF EMOTIONS
Emotion is still the key driver for high levels of consumer engagement. Fifty-four per cent of consumers who report positive emotions towards a brand, like feeling happy, valued and appreciated, are willing to forgive the brand for a mistake.
Forrester found that in 2022 59% of customers trust a brand they interact with, which is 2 percentage points higher than the 57% of consumers who trusted brands in 2020 [9].
While two per cent may not seem like much, that two per cent may be the difference between a business staying viable or going to the wall and folding.
GET EMPLOYEES ON THE SAME PAGE
Just as consumers need to feel valued and heard, so do employees. When employees are feeling undervalued, underappreciated, and when they are feeling stressed because of inadequate staffing, they can't engage with consumers.
When staff are under pressure, consumers become another stressor that has to be managed. This can result in a lack of service or poor-quality service.
As stated at the beginning of this article, when businesses begin to skimp, they do so in three areas.
- Cut back on and reduce investment in technology.
- Reduce staff numbers; &
- Reduce staff training.
These are three things that skimp on consumer engagement. We need technology to find innovative ways to engage with and listen to consumers. We need to find ways that are not seen as lazy and tokenistic.
We need staff who feel valued and appreciated, who are not stressed or feel like consumers are an imposition on their work. As well as having staff who can provide timely service to consumers, we need trained staff who see the importance of listening to and assisting consumers modelled by senior management.
It is easy, when facing the pressures of inflation, to skimp. However, when we skimp, we risk losing customers and putting the company in even more jeopardy. According to McKinsey, improving the consumer experience increases sales revenue by 2 – 7 per cent and profitability by 1 – 2 per cent [10].
The risk of skimpflation may compromise your company's ability to manage rising inflation and possible recession.
[1] https://www.the-future-of-commerce
[2] https://ujet.cx/resources/reports/cs
[3] https://www.chainstoreage.com/survey-bad
[4] https://www.chainstoreage.com/survey-bad
[5] https://www.the-future-of-commerce
[6] https://www.the-future-of-commerce
[7] https://www.the-future-of-commerce
[8] https://www.the-future-of-commerce
[9] https://www.forrester.com/press-newsroom
[10] https://www.mckinsey.com/tr/our
