Why consumer confidence matters to SMEs and how to leverage it
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The FNB/BER Consumer Confidence Index for South Africa made some gains to -10 in the third quarter of 2021, from -13 in the second quarter. This could be attributed to the faster roll-out of Covid-19 vaccines and the renewed mandate of The Solidarity Fund in collaboration with the National Empowerment Fund (NEF) to support businesses impacted by the riots and civil unrest that broke out in parts of South Africa in July this year. The same Index illustrated that there was a marked increase in the demand for big-ticket items like cars and electronic appliances.
But what does this all mean? More importantly, what does it mean for SMEs?
Consumer Confidence Explained
Consumer confidence is an economic indicator to measure the level of optimism that consumers have regarding the economy; it is crucial element that determines the willingness of consumers to save, borrow and spend.
In South Africa, every quarter, First National Bank (FNB) and the Bureau for Economic Research (BER) conduct nationwide research by gathering data on consumer confidence, which is a measure of the general sentiment of South Africans regarding the economy. Very simply, when consumer confidence is high and people feel optimistic, they tend to spend more and stimulate the economy. The inverse is true – when the general sentiment is pessimistic, the spending patterns of South Africans change significantly, with more people finding ways to cut unnecessary costs and decrease their expenditure. Monitoring consumer confidence trends is essential for small businesses to plan ahead and make informed decisions about the most appropriate business strategy.
What it means for SMEs
Consumer Confidence has a significant impact on SME revenue with the correlation between these two values being largely determined by the sector within which the small business falls. The demand for luxury goods such as jewellery, beauty spas and haute couture, for example, has a synergistic relationship with consumer confidence.
When consumer confidence is low, the demand for essential goods like certain groceries may not necessarily increase, but the demand for cheaper alternatives to branded goods increases. In times of high consumer confidence, people are more likely to spend more on credit and take out loans to finance their lifestyles. Either way, this Index is a strong indicator of revenue and is something that SME owners should monitor closely in order to accurately forecast financials.
How to Capitalise on Consumer Confidence
As the latest Index illustrates, South African consumer confidence has improved since the beginning of the year, when the economy took a significant hit. But with the indicator being less than -10, we still have a long way to go before we can report on positive consumer confidence levels.
What this represents for small businesses across the board, is a golden opportunity to gain market share by providing alternative product brands and optimising the customer experience. In times of low confidence, consumers become more discerning about how and where they spend their money. They are less likely to tolerate bad customer service and will forego their loyalty to certain brands if those brands do not adequately invest in building relationships with the people they serve.
It is in times of low confidence that your business’s reputation will work for you or against you. Unfortunately, it is in times of hardship that many brands neglect the cornerstone of their business, which is customer service. In a contemporary world where people are reduced to reams of numbers and hide behind social media profiles, the value of human interaction and personalised service cannot be underestimated.
Remember that good customer service is not rooted in external philosophies but is something that resonates from the inside out. Treat your employees fairly and with respect, optimise their working conditions and in the hard times, make sure that they are being heard, and your employees will become your greatest brand ambassadors. When employees feel valued, they value the people that are their bread and butter, and those people are your customers. As with most things in a complex business world, good customer service starts within.
Ben Bierman is a managing director at Business Partners Limited.
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