The pandemic affected consumer spending behavior worldwide. Even in major economies like the U.S. and Europe, consumers tightened their budgets to make ends meet. Coupled with inflation, consumer spending dipped to an all-time low.
However, now that the pandemic is largely under control, the world’s future is brighter, and consumer spending habits show positive signs of change. The excitement around easing restrictions is giving consumers more freedom and confidence to spend money on what they want, not just what they need – opening a massive door for SMBs.
Here’s what entrepreneurs and small business owners should know about harnessing the expected economic upswing.
The last year has been challenging for consumers and business owners, primarily because of the economic downfall many countries worldwide felt. The U.S. was no exception. Pandemic-related business challenges and COVID restrictions dealt a heavy blow to consumer spending, causing many businesses to close their doors. Those who managed to keep their businesses alive had to go to great lengths to survive.
Kate Russell, a co-owner of Hopkinsville Brewing Company, said the pandemic’s effects made everything so expensive that her business was forced to increase prices. Russell dealt with 15 to 20 percent cost increases, making price hikes inevitable. “We sat on that as long as we could before we finally had to break down and raise prices,” Russell explained.
Economists attribute the consumer spending dip to reduced cash flow in American households after the COVID-19 stimulus checks stopped coming in 2021. As an immediate consequence, consumer discretionary spending dipped in 2022 compared to 2021. Deloitte reports that during Q3 2022, consumers spent 9 percent less on discretionary expenses than in the same three months of 2021.
Smaller retailers felt the most painful effects of the consumer spending dip.
There’s some good news ahead. The pandemic has begun to subside, and restrictions are almost entirely gone. Small and midsize businesses can finally get back on track, increase sales and recover from the enormous losses they incurred.
The Goldman Sachs 2023 U.S. economic outlook predicts that consumer spending will increase steadily throughout the year, breaking even with December 2020 roughly in July and increasing to about 1.5 percent by December 2023. This spending will likely be fueled by rising income, slightly offset by negative wealth appreciation effects and a net increase in real discretionary income.
In other words, even though investments in real estate and equities are likely to drop in value, generating losses, Americans will earn more income to cover those losses and more, leaving households a bit of room to splurge.
Jon Morgan, a successful business consultant and CEO of Venture Smarter, a consulting firm specializing in helping startups and small businesses grow, believes that consumers’ revived desire to spend is a lifeline for SMBs. “For small and medium-sized businesses, this trend [represents] an opportunity to increase sales and grow their customer base,” Morgan explained.
The growing confidence in buyers to spend money on various commodities and luxuries is a golden opportunity, especially for SMBs seeking to rekindle the growth that was momentarily halted due to last year’s economic downfall.
The challenge for SMBs is preparing for and maximizing a consumer spending increase to boost sales, recover and grow their businesses. Consider the following tips to drive growth and sales amid increased consumer spending.
Social media usage increased during and after the pandemic as people used social platforms to communicate and purchase goods and services. This means a savvy online consumer community is now a potential market for all SMBs in all industries – not just digital enterprises. Enhancing small business social media usage is advised.
By running effective online marketing campaigns and using social media platforms like Facebook and Instagram, SMBs can establish their online presence and eventually get excited consumers to try out their products and services.
Consumers may experience a rekindled impulse to boost spending because of eased restrictions and increased income. However, they’re still heavily influenced by promotional content that saves them money with every purchase.
Discounts and promotions are age-old marketing strategies that are still effective. Consider “buy one, get one” deals, discounts for customer loyalty program members and occasional price markdowns.
As the world goes digital, social media influencers are an excellent channel for attracting customers and setting trends. Tyler Seeger, an entrepreneur and managing director of Retirement Being, believes SMBs should invest in influencer collaborations to effectively introduce their products to the public.
No marketing is as effective as seeing an actual person try your product – even more so if it’s someone you follow and trust. “If the organization already has its goods and its sales mechanisms in place, then influencers may assist in the creation of value via direct experience in order to sway purchase decisions,” Seeger advised.
All your business’s efforts will be in vain if you don’t have enough inventory to cover demand once it starts climbing. SMBs should consider expanding their current inventory, especially if their products have seen increased demand over the last few months.
Amid fierce competition, effective customer service has become a differentiating factor that drives business success – sometimes even more than an SMB’s products and services. Today’s consumers expect businesses to handle concerns and find workarounds for problems without compromising product quality.
Investing in effective customer service means hiring the right people, empowering your customer service team, buying equipment or software to improve communication quality, and managing concerns promptly.
Word-of-mouth marketing is incredibly effective in terms of conversions, and nothing drives word-of-mouth marketing like good user reviews.
To get ahead of your competition (or catch up) in 2023, set up company profiles on platforms like Google, Yelp and other business review websites. Ask satisfied current and new clients to leave a review every chance you get. This type of social proof will have a positive, long-lasting effect on sales and your business.
SMBs were significantly affected by the pandemic and its economic impacts, particularly in 2022. However, 2023 offers an avenue for SMBs to recover and thrive due to increased consumer spending. By investing in various marketing and customer-service-related strategies, SMBs can increase sales and improve their financial situation.
Ryan McKenzie, the co-founder and chief marketing officer of Tru Earth, agrees. “[As] the world slowly emerges from the pandemic, we see an increase in consumer spending beginning in 2023,” McKenzie noted. “American consumer spending power is expected to grow steadily in the coming years, and we anticipate that other countries will experience a similar surge.”
Bigger companies are already mobilizing their marketing departments to take advantage of consumers’ eagerness to purchase and their greater available discretionary income. There’s no reason for SMBs to stay behind and let this opportunity pass.