Overcoming the impact of inflation

Consumers throughout mainland Europe will understandably be more mindful of their spending and will be looking to make their money count this holiday season. According to data from financial firm Nomura Holdings, worldwide recessions are set to take place over the next 12 months (and may already be happening) in many of the major global economies including the U.K., the EU, and the United States. 

Financially-conscious customers will be a significant challenge for business owners this holiday shopping season, particularly during peak sales periods like Black Friday and the week before Christmas. But how exactly is the  ‘cost of living’ crisis affecting buying habits, and how can you help your business survive these tough times? Read on to learn more.

The impact of inflation on buying habits

Increased prices lower customer loyalty

A study of buying habits in 2022 found that 45% of people state that price is their main motivator for purchases — a significant lead over the next largest group (18%, who cited quality as the primary reason they favour some brands over others).

The study suggests that this holiday season, consumers may be more likely to chase the best price, instead of sticking to their favourite brands. Business owners should be wary of relying on their established customer base, as even the most loyal customers might flock to your competitors if there’s a better price available.

Rising interest rates may reduce nonessential goods purchases

Rising interest rates are a major contributing factor to the overall economic outlook. Higher interest rates, such as those in the UK (1.75%), will affect mortgage repayments and shoppers’ ability to use credit cards. As prices rise, consumers will likely prioritise essential expenses like mortgage and credit card bills over luxuries like toys or clothes.

These attitudes can even be seen in traditionally financially stable demographics: according to Forbes, one in three ‘high earning’ consumers (those making over $100,000 a year) are concerned about their level of credit card debt. As a result, 40% of high earners are delaying large purchases in the current financial climate to ensure they can still pay essential bills.

Increased digital shopping cart abandonment

Additional expenses at the checkout have always been a key reason for customers abandoning their carts before purchasing. While that hasn’t changed in 2022 (55% say it’s the primary reason they abandon their cart, according to recent surveys), there are new reasons for these expenses appearing.

Shipping costs have skyrocketed, due to increasing fuel costs and lingering disruption due to COVID-19. Since these costs must be at least partially passed on to customers, digital shopping cart abandonment is set to be a huge issue as long as inflation continues. This will likely have a considerable impact on the 2022 holiday shopping season — a shipping audit should be part of your Black Friday preparations, so you can offer customers the lowest delivery prices possible.

3 ways you can beat inflation this holiday shopping season

1. Empathise with your customer base

Forbes recommends an empathetic approach to help businesses maintain the loyalty of their existing customers. If you ensure your company’s communications and decisions display empathy towards consumers, you’re more likely to keep their loyalty in the long term.

Empathy is an effective tactic because of the frustration and fear many shoppers are feeling amid the financial crisis. Innovative solutions to save time and costs — like promotional discounts, free gifts, or loyalty programmes — are a great way of showing empathy. As well as reinforcing customer loyalty, companies can also use these tactics to reduce digital shopping cart abandonment by displaying them prominently at checkout.

2. Start peak season preparations early

Despite inflation, peak sales periods like Black Friday and Cyber Monday are likely to have a positive impact. In the UK, for instance, Black Friday spending is projected to increase by 25% compared to 2022. 

You can begin offering Black Friday deals early if you’ve already completed your peak season preparations. While your biggest price reductions should be reserved for Black Friday weekend (and Cyber Monday), preparing early means you can extend your sale period (and therefore your increased revenue) across the entire week leading up to Black Friday.

3. Maintain tax compliance

Having tax compliance as part of your holiday sales strategy is more essential than ever in this turbulent economy. It’s doubly important for businesses that are expanding during the holiday shopping season to help maximise sales. As selling across borders can create new tax obligations for your company, it’s wise to reinforce your compliance processes, or purchase a digital solution to help you stay compliant. 

Being tax compliant ensures your business can focus on maintaining revenue and increasing customer satisfaction, instead of being bogged down in tax law and compliance penalties. A well-executed compliance strategy can help you keep up with multiple tax jurisdictions and differing tax regulations. Additionally, a good strategy can help avoid fines — a problem you’ll want to avoid if you’re already tangling with the impact of inflation.

Surviving the impact of inflation with Avalara

A core part of staying tax compliant is understanding where you’re liable. If your business operates internationally, or you’re expanding over the holiday shopping season, it’s vital that you know which authorities you may owe taxes to. Otherwise, you’ll have to deal with the financial and legal penalties of noncompliance on top of the challenges caused by inflation. 

To help you understand your tax liabilities, Avalara offers free tax risk assessments. For those selling to the UK or EU, try our VAT risk assessment. For businesses selling to the U.S., get your U.S. sales tax assessment here. If you already understand your tax liabilities, and are interested in getting some expert advice on staying compliant, click here to contact Avalara today.

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