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Business owners preserve customer loyalty


September 7, 2011
By Amanda Ryder

Sept. 7, 2011 – In the face of economic uncertainty,
Canadian small businesses focus on customer experience and employee
satisfaction to drive decision making around managing rising costs.

Sept. 7, 2011 – In the face of economic uncertainty,
Canadian small businesses focus on customer experience and employee
satisfaction to drive decision making around managing rising costs. The
quarterly American Express Small Business Monitor reveals small
business owners find significant value in investing in customer and
employee loyalty over short-term financial gain, with almost half (47%)
agreeing they would rather reduce profitability than risk losing
customers due to price increases.

Alternatively, they'd rather reduce overhead costs in general (52%),
become more stringent regarding accounts receivable in order to improve
cash flow (48%) or reduce travel and entertainment budgets (36%) in
order to control costs. Only 20 per cent were willing to reduce perks
for customers, 18 per cent were willing to reduce perks for employees
and 12 per cent were willing to reduce staff wages or benefits.

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"Small business owners see their employees as critical to the success of
their business, and their customers as the lifeblood of their
franchise. We can now see even more evidence of this mind set in
challenging and unstable economic time," said Eric Nielsen, Vice
President & General Manager, Small Business Services Canada, American
Express Canada. "What's very interesting is that instead of
jeopardizing employee or customer loyalty when it comes to managing
rising costs, business owners' initial inclination is to absorb the
challenges the economy poses and respond by making changes to mitigate
these difficulties and improve their cost efficiency."

Managing price increases is a balancing act

When changes must be made that could impact the customer, including
price increases, the Monitor shows that 78 per cent of small business
owners have taken steps to make price increases more palatable. This
includes explaining the reason for the increase (61%), extending
payment terms (18%) and offering discounts for paying early (16%). Of
those who did take steps to explain raising costs, over half (57%) said
explaining the reason for an increase has been most effective. Further,
more than half of the small business owners who did raise prices (54%)
say they experienced little or no resistance from customers.

"Many small business owners responded by saying they would prefer to
carry the financial burden of rising costs, even if it impacts their
own profitability. However, the most uncertain of times can create the
opportunity to be innovative and adopt new pricing strategies. Business
owners are having success when they support the new price points with
tactical customer communications explaining the rationale for change,
or strategic enhancements to their service experience," said Nielsen.

The primary reason for not increasing prices in response to rising
costs, according to 38 per cent of respondents, is the need to stay
competitive. Fifteen per cent say they won't raise prices because they
believe customers won't understand or that they would lose sales if
they did so.

In terms of the causes for potential price increases, the culprits are
not surprising. Over the past year, businesses have experienced above
normal price increases in various areas, including gasoline/diesel fuel
(78%), heating oil/natural gas/electricity (40%), travel (37%) and
insurance (34%). Of these, small business owners indicated that the
area of greatest concern is gasoline/diesel fuel (52%).

Additionally, supplier price increases (68%) have had a negative impact
on profitability and more than half (51%) of small business owners say
they have switched to a competing supplier with a lower price as a way
to mitigate the impact.

In turbulent times, SBOs are confident

Still, the risks and challenges that accompany turbulent economic times
are greatly outweighed by the rewards and opportunities that come with
small business ownership, 83 per cent of Canadian small business owners
reported. And nearly three-quarters (74%) believe their companies are
financially flexible enough to weather another recession.

Small business owners are growing increasingly confident about the
financial state of their business. They feel that their financial
position is improving and are hopeful it will continue to progress in
the future. In fact, nearly half (47%) of those surveyed report an
improvement in their business' current financial position, which is up
14 points from last quarter (33%), the highest percentage of
improvement reported by small business owners in the last year.

While the majority of small business owners continue to be risk averse,
more are willing to take risks today than they were three months ago
(28%, up from 22%). Perhaps more interestingly, small business owners
are much more willing to take risks during an economic downturn versus
a more stable economic time.

"Getting new customers and keeping existing customers will always be the
number one priority for business owners.  It's even more important
during times of economic uncertainty that business owners continue to
refine and enhance their business practices to remain flexible, stable
and open to taking well calculated risks," said Nielsen. "Risk taking
is intrinsic to being in business for oneself, and business owners are
generally very well calibrated in terms of assessing the risk vs.
reward tradeoff."


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