It’s all about the habit.  If you can keep customers in the habit of using your products or services when times are tough, you’ve put yourself in a good position to see increased revenue when the economy improves.

Ed Engoron, president and CEO of Perspectives/The Consulting Group, Inc., has done considerable research into consumers’ buying patterns.  “People get in the habit of doing the same thing on a regular basis,” he says.  “At McDonald’s, it’s real simple for me to order an Egg McMuffin and coffee and do it everyday.  I don’t have to decide if I want eggs over easy instead.”

But in tough economic times, people start to rethink their buying habits – and that can be bad news for many entrepreneurs.  If a customer falls out of the habit of coming in, it takes 2 to 4 years to re-establish that habit, according to Engoron.  “So, savvy operators during this cycle are looking at ways to keep people coming in.”

Enter the theory of compensatory consumption.  This has two aspects. First, consumers may make small purchases to compensate for the stress they’re under. These small ticket items are inexpensive and offer immediate gratification.

Second, consumers will often buy a smaller ticket item instead of a higher ticket item of the same type if they can expect a similar experience for less expense.  For example, instead of going out for dinner, many consumers are opting instead to go out for a drink or a dessert. 

This is true almost across the board, not just in retail. Dean Thompson, founder and president of Enterprising Works, has experienced clients reducing the use of his services in order to save money. To respond, he began offering smaller service packages and less costly products. 

The downside, Thompson says, is that you have to be prepared to accept lower margins.

Diahna Lynn, owner of Diahna Lynn Wig & Hair Studio in Silver Spring, MD, has been promoting small services such as eyebrow waxing and tinting to keep customers coming in. The key for Lynn is that she strongly believes that the lower-priced offerings are an excellent value for her customers.  “You can get a great transformation doing really small things as opposed to a major highlighting job.”

Barbara Thomas, owner of Ruby Jane's Retro Fabric, an online retailer, saw sales slipping over the summer.  Her sales dropped from an average transaction of about $40 to about $18.  She knew it was time to take action, but she also knew she didn’t want to lower her prices, which range from about $8 to $10 per yard.

She tried a few different strategies, such as bundling items together. Then she decided to start selling items by the half-yard (previously all sales were by the full yard).  “Within days my sales were back on track. Customers were ordering ten and twelve half-yard cuts. Having the ability to get more variety in fabric encouraged them to buy more.”

Almost immediately she was back to her average $40 per transaction sale. “The down side is I’m working twice as hard because it’s time consuming to cut out a half yard of thirty different fabrics.”

Still, in tough economic times, a customer in the hand is a customer to be valued.  “I would rather take less margin and keep people coming in the doors,” says Engoron, “then let them fall out of the habit.”