The biggest economic threat facing the West at the moment is inflation. We are already seeing economies such as North America and Europe with inflation of around 10%, and the consensus is that inflation is going to get worse. Inflation reduces consumers’ spending power, pushes up interest rates, makes everything less stable, and can lead to recessions.
One of the key challenges for managers and advisors below the age of 60 is that double-digit inflation has not been faced in developed economies for about forty years. This means that most people running businesses today have not had to operate during inflationary times – which was the topic of a post I wrote for NewMR recently.
What about Customer Experience?
In this post, I highlight the key aspects of inflation that impact CX, before looking at what you can do to mitigate the problems.
The three forces affecting customer experience during inflation are reduced spending power, increased prices, and the need to cut costs.
Reduced spending power does not impact everybody, so it does not impact every product or service. The people with the most severely reduced spending power are those whose incomes are fixed (or whose incomes increase by less than inflation) and who do not have a good income buffer. Inflation is a bigger problem for people with low wages, people on benefits, and many retired people.
If somebody is confronted with a reduction in their spending power, they have to decide what they are going to buy less of. For example, they might decide to buy less tomato sauce, thus using less of it. Or, they may decide to eat out less often and buy more tomato sauce because they are eating in more. Or they might switch from a premium tomato sauce to private label tomato sauce. There is no single pattern that affects all brands and all services.
People may also switch from buying their tomato sauce from their neighborhood store to a discount store. Or, they may start buying more of their shopping online, or join discount schemes and clubs. From a brand’s point of view, the key concerns are churn and lifetime value. Somebody buying less of your product or service for a couple of years, because they are short of money, is not a long-term problem. Somebody switching from you to another product, service or channel is a much bigger issue. This sets different players in the system against each other. The maker of the tomato sauce would prefer its customers to switch channels or to buy less sauce. The retailer would prefer the buyer to stick with the same retailer but switch brand of tomato sauce.
Increased prices impact more people than reduced spending power. In an economy, even in inflationary times, only some people feel the heat of reduced spending power. If your income is index-linked, or if you were not spending all your income anyway, then reduced spending power is not a big issue. However, increased prices potentially impact everybody. In the first few years of inflation (and following 40 years of low inflation), people feel aggrieved by increases in prices. When prices go up, people often re-evaluate whether they really want to buy that product or service. If they realize they don’t really value it, they may stop buying it, even if they can readily afford it. Amazon has recently announced a price rise for its Amazon Prime service in the UK, the first rise in eight years. Most of their customers could afford to pay the extra amount, but how many will use this price rise as a reason to question whether they need Prime? That is, instead of thinking ‘Am I willing to pay £1 more a month to keep Prime?’, they think ‘Do I want to pay £8.99 a month for Prime?’
The need to cut costs raises the prospect of the product or service being reduced in quality. Note, if there are costs that can be cut without making the product or service inferior, they should already have been implemented. Typical ways of cutting costs include: cutting staffing levels, cutting marketing spend, reducing research and new product development, reducing the coverage (for example, shorter opening hours), and making the product or service less good (for example, making the chocolate bar smaller, the insurance policy less comprehensive, or increasing queuing time to pay or enter).
What can you do to help?
The key to improving customer experience is to move from experience managers to experience leaders. In the context of inflation, this means creating experiences that optimize your options in inflationary times.
The twelve key steps you can take are:
1. Be proactive. As a brand, you do not want to be reacting to changes in costs, demand and markets, you want to lead on as many things as possible. Decide on your direction of travel, design the customer experiences you want to achieve and then make sure that the steps you take lead in that direction.
2. Be transparent. If you have to put prices up, be honest about it, never surprise customers, and ensure that your teams, especially your customer-facing teams, have been briefed properly. If your prices are going up because your energy costs have gone up, say so, and make sure your teams say so too.
3. Be honest. If the price of milk has gone up 10%, but milk only accounts for 1% of your costs, don't put your prices up 10% and blame it on the milk.
4. Be customer-focused when cost cutting. If you cut costs, work with your customers to minimize the downsides for them. Find out which options they don’t use/value, find out which options they are most willing to give up, and investigate new (lower cost) options such as self-service.
5. Try to avoid leaving money on the table. If you reduce your service by 10% and thereby avoid a 10% price increase, you are likely to leave money on the table. There will be customers who would happily have paid the 10% more to get the full service. Create options that allow the people who want to pay more (so that they get more) to do so.
6. Focus on lifetime value and reducing churn. What options can you offer that will avoid somebody switching to another supplier or ceasing to use this product or service entirely? If you offer an online service, is there a lower tier that people can switch to? If people have a mobile phone contract with you, are there changes to their plan which will not impact their utility, but which will save them money?
7. Listen to your customers. There are more smart people outside your organization than inside it – so it makes sense to leverage the wisdom of the crowd. In your CX surveys, ask people if there are things you could tweak to reduce costs and preserve value? Or are there options to add value without adding costs? Integrate your CX with your wider insights program, adopting T-shaped research approaches.
8. Review your CX program, are there alternative providers that could simultaneously reduce your costs and put you on a pathway that will allow you to avoid CX stagnation? Platforms are going through rapid changes, new players have added new integrations and the future is closer than you think.
9. Add value if you can. If you are a restaurant, the cost of the food is a relatively small proportion of the price (compared with staff, rent, energy and taxes), so perhaps make the meals larger or promote taking a portion of the meal home.
10. Think about the whole customer, the human experience (or HX as we at Platform One have termed it). Maybe you have not increased your prices, maybe you have not altered your product, but what else is happening in people’s lives. Are there things you could be doing that would help your customers? Think back to the pandemic and the number of companies who started making handwash, masks etc. Are there innovations you could do now to help your customers through these inflationary times?
11. Think beyond your product and services. Think about the issues that matter to people, issues like the climate catastrophe and inclusivity – what can you be doing to support your customers’ beliefs without necessarily spending money?
12. Focus on your people. It is your people who deliver the experience, it is your people who take all the grief when you increase prices or reduce the service. Make sure that you have a great EX (employee experience) program. Work out how to help your staff get through these inflationary times.
The Main Message?
Inflation is here, and for most of you, it will be a new experience. Things are going to be much less stable, which means you need as much information as possible. If you have not already shifted from experience manager to experience leader, now is the time! If you want to know how to do that, and how Platform One offers you the tools to do it – contact me via email@example.com