Stronger and smarter: Responding to volatile demand

The posts in this series have been drawn from Xero’s Stronger and smarter: a small business handbook. Designed to help small businesses determine which steps to take next, this practical guide uncovers the 10 trends shaping the future – so you can come back stronger and smarter than ever.

Responding to fluctuating buying patterns all comes down to understanding your customers’ mindsets.

As the government restrictions to protect our health eventually ease, people will adapt to the changes at different speeds. Those variations will, in turn, have big impacts on sales for small businesses.

For those supplying household basics, spikes of panic buying are still happening at times – and threaten to reemerge whenever lockdown restrictions return. In contrast, if you’re a small business owner helping people plan their international travel, things are likely to be quiet for some time to come.

When customers purchase can fluctuate and change at short notice, because planning horizons have shifted – all the more so while the risk of the crisis escalating again remains. Where once clients might have scheduled a car service, beauty treatment, or B&B room weeks in advance, they now book only a few days out, due to shifting restrictions. For some businesses, like restaurants, it’s exactly the opposite, with limited spots being snapped up well in advance. It’s all part of the volatility of the times.

Experiencing recovery in different ways

As the recovery gathers pace, economic progress won’t always seem orderly, predictable or linear. In some small towns, for example, it may feel like not much has changed since before the pandemic. In cities, however, it may take longer for a new rhythm to become apparent, and this might change the forecasts you make for sales in different parts of the country.

On the international front, some countries aren’t likely to pass out of the pandemic crisis phase at the same rate as Australia, so supply shortages of foreign-sourced materials may continue even if our nation is thriving again. 

Making your customers feel safe

You may notice in your own local community that people of different age groups choose to socially distance for longer than others. Older people, for example, may remain more cautious about gathering in large groups. If they’re a big part of your customer base, you might need to think about how to reach out to them.

Ultimately, we may hope that instances of panic buying and hoarding will disappear, but we can expect some levels of volatile and patchy demand to continue for small businesses for a while, as communities recover at different speeds.

That’s why it’s important to stay on top of what your customers need and how they’re changing their spending. Coping with volatility is much easier if you have up-to-date data and insights, and keep a close eye on changes you can see in your customers’ buying patterns.

Consider your customer

• How will you monitor the volatility in your customer buying patterns and get access to more accurate demand data?
• How can you create flexibility in your booking procedures to match the shorter horizons in customer forward planning?
• If customer demand dips, can you try bundling some of your products with other complementary offerings, or find new referral partners and offer commissions?

Consider your business

• How can you best respond to rapid rises in customer demand?
• If customer demand falls, will you consider clearing stock, pivoting to new product lines, or diversifying your range to spread your risk?
• If your production needs to fluctuate, can you reduce some fixed costs and make them variable?

Tips

• Monitor customer demand changes frequently.
• Minimise new overheads and examine ways to convert fixed costs to variable costs.
• Develop plans to scale production up or down in quicker ways than you used to.
• Shorten lead times for product development and production where you can.
• Streamline order fulfilment in advance of customer demand surges to help get products out the door when sales shoot up.