The ‘cost of living crisis’ has meant the prices for many essential goods in the United Kingdom have been increasing faster than household incomes. It has been wreaking havoc with many people’s finances for some time now, so how can small businesses encourage consumers to spend their hard-earned cash with them?
A recent study by Uswitch business credit card experts surveyed 2,000 consumers in order to help small businesses understand how customers perceive pricing and what they value most when it comes to products and services offered by small businesses. The findings indicate how small businesses can successfully balance competitive pricing with quality.
How has the cost of living crisis affected consumers and their disposable income?
Uswitch discovered that from Q1 2015 to Q4 2024, the Consumer Price Index (CPI) increased by a whopping 35.7%.
They also found that monthly electricity bills increased by a whopping 161%[6] between 2015 to 2024, average rent prices increased by 44.6%[7] and UK average house prices increased by 41.3% [8] [9] in the same time period.
The cost of living increases don’t stop there, with recent government stats[10] revealing food and non-alcoholic drinks prices rose by 32.6% between 2014 and 2024, oils and fats increased 71.7%, and meat increased 23.2%!
With finances spread so thin, consumers are being more selective and discerning about where and how they spend their money.
How price-sensitive are customers and what drives their purchasing decisions?
Uswitch found that over 9 in 10 Brits (95%) said price influences their decision to shop at a small business. This highlights the fact that small businesses need to focus on competitive pricing to get customers to spend.
Table showing how price influences consumers’ decisions to shop at small businesses
|
Influences decision (Net) |
94.75% |
|
Very much |
25.54% |
|
A lot |
28.89% |
|
Somewhat |
32.58% |
|
A little |
7.75% |
|
Not at all |
5.25% |
However, 39% of Brits said they would be willing to pay more for a product or service from a small business compared to a chain. This accentuates the fine balancing act between keeping quality high and maintaining affordability, which business owners must achieve to be profitable.
Table showing to what extent consumers are willing to pay more for a product or service from a small business compared to a chain
|
Yes (net) |
39.03% |
|
Yes, absolutely – I prefer to support small businesses even if it costs more. |
9.85% |
|
Yes, within reason – I’ll pay a little more but not significantly higher. |
29.19% |
|
Yes, within reason – I’ll pay a little more but not significantly higher. |
36.43% |
|
No, not really – I usually go for the best price regardless of the business size. |
14.29% |
|
No, never – I always prioritise affordability over business type. |
10.24% |
|
No (Net) |
24.54% |
What do customers value most in relation to pricing?
The top three factors that Brits said make a product or service worth its price to them, are:
1. Quality (72%)
2. Convenience (40%)
3. Customer service (37%)
Andy Elder, Uswitch business credit cards expert said:
“It seems that opinion is split amongst consumers on whether high quality or low prices are more important; almost half (49%) of Brits think small businesses should focus on offering competitive prices more, whereas 43% think small businesses should focus on emphasising value and quality. We can infer from this that the best approach may be to keep quality as high as possible whilst making sure prices are competitive for the industry. Using effective pricing strategies like discounts, bundle deals or loyalty cards could also be a good option for when a business owner wants to offer superior quality but still reassure the customer that they are getting a good deal.
“Keeping quality high likely means business costs or overheads will remain at the higher end of the scale, which could cause potential cash flow issues for some businesses. Having the right business credit card can help SMEs to make investments or manage cashflow in a way that supports them to grow and succeed.”
Effective pricing strategies
Uswitch also found that 72% of consumers said promotions or loyalty discounts played an important role in encouraging them to shop at a small business.
This is further backed up by statistics by the National Centre for Social Research on behalf of CMA which report 97% of regular grocery shoppers are a member of at least 1 loyalty scheme.[11] [12]
Furthermore, 54% of shoppers said they value loyalty pricing more than promotional offers on future shops (vouchers) and 27% of shoppers are switching more of their shopping to a supermarket offering loyalty pricing[13]. This therefore suggests small business owners should be putting effective pricing strategies such as loyalty cards and discounts into practice.
To conclude, Andy Elder, Uswitch business credit cards expert, gives a quick and simple overview of how small businesses can use these findings to increase profit margins, below:
-
Adjust pricing strategies to better align with customer expectations.
-
Highlight value through marketing (e.g., emphasising quality, local sourcing, or craftsmanship).
-
Develop promotions or loyalty programs that resonate with customers.
-
Address pricing misconceptions through transparent communication.
