Household income, which has declined steadily since 2000, is going to continue declining for the next 20 years, according to a report from Cornell University. What will it mean to your business?
The decline isn’t a short-term result of the Great Recession, but a long-term trend based on demographic factors, specifically for these two reasons:
- Baby boomers’ incomes drove median income growth in the 1980s and ‘90s, but in the next 20 years the boomers will retire and their incomes will decline.
- The Hispanic and African-American populations are growing. Since both of these ethnic groups traditionally have had lower mean incomes than average (only 60 percent of the mean Caucasian income), growth in their numbers will pull the overall median income down.
How can you keep declining incomes from hurting your business?
1. Improve customer service. Even if consumers have less money to spend, they'll still need to spend money. Shoppers on a budget don’t want to spend additional outlay dealing with service problems or repairing faulty products. Make sure your customer service is stellar, and offer guarantees or warranties on what you sell to boost shoppers’ confidence in your business.
2. Help shoppers make informed decisions. Cautious spenders will do more research before buying, and these days, that means going online. Particularly if your company sells big-ticket items such as electronics or appliances, encourage customers to review your business on social media sites, ratings or review sites. Monitor your reviews to make sure they’re positive. Provide lots of information on your website about what you sell so customers can get the information they need.
3. Develop loyalty programs. If customers have less to spend, getting them to buy more from you is key to keeping sales solid. Use loyalty programs to reward customers for purchasing, and encourage them to keep coming back. There's a wide range of loyalty tools out there, from the old-school paper punchcard to mobile loyalty apps like Belly or Perka.
4. Use new, cost-effective, more efficient technology. Holding on to outdated technology may seem penny-wise but is really pound-foolish. It could be costing you time and money. Take a hard look at your business systems, processes and technology to figure out where technology could save you money, time or labor. (Enlist an IT consultant or tap a more tech-savvy business colleague if you need to.) For example, maybe customers can make appointments on their own online rather than calling your business.
5. Lower your product or service costs. Start now to investigate lower-cost options from suppliers, manufacturers or service providers. Perhaps you can negotiate lower prices, source overseas or use independent contractors instead of employees to provide some of your services.
6. Go global. While incomes in the U.S. are shrinking, those in the developing world are rising. Tapping into growing markets overseas can help protect your business from slumps at home. If selling to developing nations is too intimidating, start smaller with a country where you have personal connections or where English is a primary language, such as Canada or the U.K. Diversifying your business this way is a smart move, and the Internet has made selling overseas easier than it used to be. The Small Business Administration’s Office of International Trade offers lots of resources to help you get started.
7. Adjust pricing to offer lower-cost products and services. Consider bundling your services into different tiers such as silver, gold and platinum. This way you can cater to customers at all income levels. In the same way, you can package products together or suggest purchasing complementary items, but also offer “a la carte” options.
8. Focus on the upscale niche. Competing on price is tough for a small business. For many, the solution is going the opposite direction. There will always be uber-wealthy consumers, so if you can transition your positioning to providing the best of the best to the discriminating customer, you will always have an audience for what you sell.
How are you adjusting to consumers’ lower incomes?
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