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Effective strategies to manage your business during inflation

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Find out how companies are redefining business models to counteract economic constraints.

While the causes of inflation aren’t one dimensional, neither are the solutions available to managers concerned about higher prices for labour, energy and components, shortages in the talent pool, disruption in freight logistics and a lack of mobilisation in the supply chain.

Rather than passing on the cumulative higher prices to customers, companies can renegotiate contracts with suppliers and end users, and redefine business models so enterprises can take advantage of an economc cycle not experienced for three decades.

Visibility reinforces viability

For business to reap any benefits, the fundamentals of being seen and marketing to customers is critical. For clients, existing and potential, to consume goods and services, they need to know they exist.

Marketing is about being seen, about brand promotion, and cutting back on advertising during a period of inflation may be counterintuitive. Once a business cancels the brochures and neglects the company website, the enterprise may be exposed to the misconception that business is in distress.

In an economic downturn it’s prime time to be visible, to be heard and reinforce the ‘business as normal’ corporate stability messaging. It not only maintains presence but presents opportunities to increase market share when competitors are retrenching.

Proactivity and assumption

On equal footing with maintained marketing presence, is market research and data analysis.

For that sustained marketing budget to be justified it needs to deliver tangible results. John Regan, chief executive of data intelligence firm Electric Guitar says companies need to adopt a 360-degree experience for consumers in terms of brand promotion blending data insights, pertinent advertising with privacy protection.

He references the lifelong relationships Tesla is creating with its customers and argues that regardless of economic challenges, the data curated on customers can be monetised. Analysis of proprietary customer intelligence and holistic exploration of client preferences is fundamental to the company’s growth.

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What does the customer want, what are they unsubscribing from, what is their preferred form of communication and how much are they prepared to spend? And in times of inflation and rising prices, don’t make assumptions about the customer’s willingness or ability to pay more.

While government stimulus packages, household support and company subsidies are being withdrawn universally, through renewed and repurposed market research enterprises can ascertain if customer disposable income includes contingency for discretionary or additional spending.

Client sensitivities

Is the client price sensitive or quality sensitive?

Data analysis may reveal if the item produced remains a ‘must have’ irrespective of an increase in the unit price.

And what about the contract with the customer? A wholesale review of terms and conditions may be required to examine if contracts agreed for goods and services are dependent on consistency, or if there are caveats for ‘in-line with inflation’ price increases which help offset inflation-fuelled increases that business is absorbing.

Customer retention and churn avoidance can be mitigated by contract renegotiation or new contracts based on a ‘pay-as-you-use subscription service’ which is affordable for the customer unwilling to be locked into an annual contract for a service used intermittently. The customer remains loyal, impressed with the tailored solution and it’s an initiative that can be deployed between companies and their supply chain.

Stay close to cut costs

A shortage in the supply of critical electronic components including microchips, the increase in transportation costs, delays in delivery due to Covid-induced congestion at ports, and the increase in the cost of energy are some of the inflationary pressure impacting corporate balance sheets.

One solution to unbundling and diminishing freight costs is to keep it local. A conversation with an HSBC Relationship manager about the benefits of ‘nearshoring,’ bringing production home and sourcing closer to domestic markets is a first step to rationalisation and financial reward.

Another inflationary conundrum is the increase in wages.

Retention of your key asset

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The living heartbeat of a successful business is excellent people. Without them there is no creativity, no one to assemble the product or deliver the service, be company ambassadors and there is no one to hold management to account.

Regardless of the talent, the advice from monetary policy makers is to be firm when it comes to compensation negotiations.

Wage rises are part of the inflation increasing pot and in February, when the Bank of England announced its first back-to-back interest rate rise in 18 years, Governor Andrew Bailey cautioned businesses to assert “restraint” in pay negotiations. Telling workers not to ask for a pay rise was as unpopular option as the interest rate increase designed to cool inflation.

Be cyber smart

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In addition to the retention of key staff and preservation of the marketing budget, cyber security is another essential part of corporate spend that needs protecting. Digitisation and the adoption of cloud services keep business competitive and agile. Without safeguards sensitive information, intellectual property and networks are at risk of being damaged, stolen or misdirected.

In 2021 Google made a $10 billion commitment to cyber security improvements and while the budgets of small and medium enterprises won’t stretch to that, utlilizing HSBCnet maintains secure online banking and uninterrupted protected transactions for companies and their clients, thereby improving business efficiency.

Stakeholders and investors

The retention of stakeholder and investor engagement in both private and stock exchange-listed entities is recognised as being on a par with customer loyalty. The seed investors supported the business from the outset, and can be part of the solution when economic conditions are adverse.

For example, if an injection of cash is required for a restructure or working capital, existing or new shareholders may be willing to participate in a fundraise, or provide a non-financial solution by utilising their network.

Additional solutions include the improvement of working capital by extending Days Payable Outstanding which removes reliance on less cost-effective unstructured lending programmes.

Future proofing enterprise in the age of inflation

With this current wave of inflation less likely to be transitory in nature due to the unusual two years that preceded its emergence, the adoption of proactive solutions can inflation-proof enterprise now and prepare for the possibility of stagflation.

Digitising business and equipping employees with the tools to work remotely reduces the need for fixed offices and its associated overheads. Additionally, the increased use of online marketplaces, encourages price transparency between consumers and producers and inspires competition, which could lead to lower prices.

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E-commerce is also synonymous with quicker transactions and enhanced productivity, and assists a company’s transition to sustainability with green, carbon neutral practices.

These value-adding digital initiatives are instrumental in the future proofing of the business cycle, and inherent in the modern banking solutions helping enterprises offset the impact of inflation.

A trustworthy banking partner

With more than 155 years of banking experience, encountering economic cycles both anticipated and unpredictable, HSBC has agile initiatives incorporating international support with active Relationship Manager, thought leadership and industry sector experts that advise and devise relevant and economic-cycle agnostic solutions.

Need support to better manage your business during inflation? Get in touch with HSBC for tailored advice and support.

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