The Energy Crunch: Is It Costing You Customers?
 By Lee S. Shaffer

Gas prices no longer hover around $3 a gallon. Sky-high summer electric bills gave way to autumn. So far, it appears that home heating costs for the winter won’t drain consumer bank accounts.

But small-business owners should begin preparing their responses for the next surge in energy prices, says a recent Yankelovich MONITOR Research Brief on 2005/2006 fuel prices.

Marketing consultancy Yankelovich, which has tracked consumer value and lifestyle trends for more than 30 years, found that the surge in gas prices past the $3 mark was jarring enough to cause many consumers to adjust their priorities, make trade-offs and change purchasing behaviors.

Maybe you noticed the pullback in consumer spending. Did your sales dip? Did big-spending customers suddenly start checking prices? Did customers cut back on the number of services or products they purchased from you?

“The first thing people did was cut back on the quantity of the goods they bought,” says Lexi Hutto, senior consultant of MONITOR and author of the Brief. “If one person cuts back, there’s no real impact. But when many people cut back in concert, that has a huge impact on the economy. We saw this trend across many product categories from restaurants to consumer packaged goods to personal services.”

The prolonged energy crunch may have abated – for now. But there’s a good chance we’ll see soaring prices again in the near future. And consumers will react in much the same ways they reacted the last time: They’ll curtail their spending.

“Other gasoline price upheavals are sure to come, so smart marketers will use this intervening period to plan their responses to the next spike,” says Hutto.

Yankelovich identified six ways that consumers adjust their spending when energy costs dent their wallets. Here’s a list of those adjustments, and some ideas of how you can react to maintain your profits the next time around.

1. Quantity
Consumers buy the same brands, but in smaller quantities or less often.

What you can do: Don’t super-size your products or services. Instead, make them less expensive by downsizing. Give customers more choices over the quantities they buy.

Package fewer items in smaller packages. Or price your products so that you can profitably offer a BOGO (buy one, get one free).

Service providers might want to give clients cafeteria-style offerings. For instance, dog groomers frequently bundle grooming services that include washing, flea dips, clipping nails, etc., all for one price. The smart move would also let customers choose and pay for only the service they need, like having the pet’s nails clipped or having the pet dipped for fleas.

2. Durability
Consumers increase their emphasis on buying better quality so that products will need to be replaced less often.

What you can do: Emphasize durability in your marketing and promotions. Provide the best guarantee you can for products and services. Explain to customers why your product won’t go out of fashion for years. If you offer a service, tell customers how it can save them money in the long run.

3. Quality
Consumers substitute preferred items or services for less desirable ones.

What you can do: Be prepared to offer choices. If customers can’t afford the expensive, top-shelf product, guide them to a lower-cost item that will meet their needs equally as well. If you deliver services, offer compromises. For instance a lawn service could substitute once-a-week yard care for once every two weeks.

4. Novelty and Experimentation
Consumers are unwilling to take the risk of buying things they haven’t tried before.

What you can do: Stick to your core competencies. Perhaps postpone introducing new products and services.

5. Non-Product Value Enhancers
If they’re going to pay more, consumers want to be compensated with better service or other intangibles.

What you can do: Improve your customer service so you stand above competitors. Offer discount coupons for future purchases of products or services.

6. Convenience
Consumers are willing to trade off conveniences, such as having someone else do the work, in order to save money.

What you can do: Show customers specifically how you can save them money or time or both. If appropriate, offer free gift wrapping and free or discounted delivery.

(Posted December 2006)

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