How Small Businesses Can Attract Holiday Shoppers in a Downturn – HBR.org Daily

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The holiday season is a critical time for many small businesses. But as the threat of an economic downturn looms, what can business owners do to attract holiday shoppers, who may be increasingly price sensitive? To explore this question, the authors surveyed 550 U.S.-based consumers and interviewed nearly 50 small business owners. Based on their findings, they identified seven strategies that can help local businesses stay competitive and draw in customers this year — even as budgets grow tighter.
As the threat of an economic downturn looms, many small business owners have become increasingly concerned about the impact of a potential recession on the critical holiday shopping season. These businesses often rely heavily on a winter sales bump to make ends meet. But this November, 73% of recently surveyed SMBs reported a sharp decline in consumer spending — and a record-breaking 41% were unable to pay their rent on time. What can small companies do to weather the storm and attract shoppers in a holiday season clouded by economic woes?
To explore this question, we surveyed a diverse group of 550 U.S.-based consumers and interviewed nearly 50 small business owners. And while more than half of the consumers in our study felt it was important to support their communities by buying holiday gifts at small, local businesses, only 18% said that they would be willing to spend more money to do so.
This isn’t a new phenomenon. In 2008, McKinsey reported that rising unemployment and inflation during the Great Recession was pushing consumers to prioritize price over considerations such as service level, uniqueness, or quality (where small businesses tend to shine). Today, the consumers in our survey said they planned to spend less than a third of their holiday shopping budgets at small businesses, opting instead for alternatives, such as department stores or Amazon. Forty-eight percent said they would do less shopping at small businesses this year because of budget concerns.
That said, our data also suggests that there are several steps small businesses can take to address the hurdles that keep consumers from shopping local, and continue to attract holiday shoppers — even when budgets are tighter:
The biggest concern our consumers identified with respect to shopping at small businesses was price. More than 70% expressed a belief that prices at local businesses were higher than at big retailers, and nearly 60% said they would be shopping at small businesses less this year because they were more expensive. “In years past, it has been a priority of mine to shop at small businesses,” as one respondent explained. “But with inflation ramping up this year, I can’t ignore that my dollar sometimes goes farther at big box stores or on Amazon.”
Of course, small businesses do sometimes have higher prices — but that doesn’t mean they can’t mitigate consumers’ concerns with discounts and promotions. To attract increasingly price-conscious buyers, many of the business owners we talked to offer promotions, such as price markdowns, free delivery, or free gift cards with a purchase. Gift cards are also a highly desirable gift in and of themselves, and can be made even more attractive if they come with a reward to the buyer (i.e., get $10 store credit for every $50 gift card you purchase).
Our interviewees also emphasized the importance of thinking outside of the box both to address the price gap in creative ways and get consumers more excited about your brand. A surprise flash sale, a “25 days of Christmas” or “eight nights of Hanukkah” giveaway, or a lottery bag with an assortment of popular products featured in-store and online can all boost engagement and bring in more traffic than a simple sale. And if you can get a promotion to go viral, it can create a virtuous cycle: For example, if you post a trivia challenge on social media offering a free product to the first person to answer a question about your store or products (or anything else), it won’t just bring in the single customer who wins the prize. It’ll boost awareness of your company among everyone who likes, shares, and comments — and all their friends, too.
The next biggest concern the people in our survey raised was that small businesses tend not to offer online shopping options, with 37% of respondents citing this as a reason they’d take their business elsewhere this holiday season. But while many small businesses may not have the resources to build an entire custom website, there are a lot of lower-lift options that can make a major difference.
Importantly, this isn’t just about becoming tech savvy. Many of the older business owners we interviewed struggled to navigate unfamiliar digital tools, but younger owners who felt more comfortable with these tools often still struggled to optimize their online presence, spending substantial time and effort promoting their business online without a clear payoff. Whether you are unsure about how to leverage these platforms, or simply don’t have the time (who does?), there are steps anyone can take to increase their reach online.
First, if you’re looking for free or low-cost support, consider reaching out to local schools or colleges and offering your business media strategy as a class project. Many marketing or entrepreneurship courses encourage students to get real-world experience, so helping you out could be a win-win.
Next, remember that you don’t need a dedicated website to build online visibility. Identifying the right communication channels to reach your audience — whether that’s Facebook Marketplace, Instagram, TikTok, an email newsletter, or some other platform — can help you boost awareness without a hefty investment. Encourage customers to write reviews on local community Facebook groups, your business’s Google listing, or other social media outlets, and make sure your business is listed on popular online directories and review sites. Many of the business owners we spoke with also had success with social media giveaways featuring their most popular products, as these posts can go viral and actually drive a lot more traffic than a static website or purely informational social media posts.
Most importantly, when it comes to the digital world, frequency and recency are key. Looking dated or inactive hurts you more than you think, so it’s critical to update your online presence on a regular basis. That can mean maintaining a daily social media posting cadence, reaching out to customers to ensure you always have recent reviews online, or sending regular promotional emails to remind your customers about your business and encourage them to return.
The next most common concern identified by the consumers in our survey was that small businesses tend to offer less variety, making it harder to find the products buyers need at these stores than at larger retailers.
To help customers find what they’re looking for, create gift guides for her, for him, for kids, for pets, and for friends, either just highlighting your store’s unique offerings or in partnership with other small businesses. And if you have a have a website, make sure it includes a “wish list” feature so customers can make their own gift lists to share with family and friends. And make sure you and your staff are ready to answer any questions and provide recommendations yourselves when needed!
Many of our respondents were hesitant to shop at small businesses out of concern that it would be less convenient, less accessible, and more time-consuming than shopping in big stores. The holiday season is busy for your customers too, so even just offering time-saving options such as curbside pick-up or delivery can dramatically improve their experience.
It’s also importance to remember that accessibility means different things to different people. Some business owners found that enforcing social distancing or other Covid-related policies was particularly important to their customers, while others described the importance of supporting non-English-speaking customers with bilingual customer service agents to ensure all customers can easily access the business and its products.
Business owners can also invest in convenience by offering new products or services, such as complimentary gift-wrapping services. An electronics reseller described the value of adding a gift-wrap option, explaining: “During the holiday season, I began to include complementary gift wrapping, [which] saved time [for my customers] down the line…I took on initial costs, but was able to recuperate them quickly because [I] started to attract a large number of new consumers…I was able to sell off most of my inventory, while my competitors got stuck with the holding…Not only did I generate profit, but I also was able to generate a massive amount of positive reviews on my page, which branded me as a reputable seller and only benefited my future business!”
In our surveys, we looked at both the hurdles and benefits consumers associated with small businesses, and we found that the number one reason people chose to shop small was in order to find unique products that they couldn’t get elsewhere. Indeed, prior research has shown that buying a unique product makes consumers feel special, and small businesses are perfectly positioned to meet this psychological need. So, embrace your uniqueness!
Of course, this can be counterintuitive at times. One store owner, for instance, told us how she normally sells very unique items, but because she knew consumers were extra-sensitive to price this holiday season, she decided to order more generic, cheaper items. Unfortunately, she still couldn’t afford to sell them as cheaply as big stores could, so she lamented, “Now I am stuck with this inventory and probably will need to lose money in order to get it sold.” It’s an easy mistake to make — but our research shows that trying to compete head-on with large retailers is a losing game.
Instead, small businesses should focus on their own differentiated value. While many holiday shoppers this season may be driven primarily by price, they will still be on the look for that perfect, unique gift, and they may make budget exceptions when they find it.
It’s also harder to compare unique products with standardized ones, so focusing on these items can help small businesses avoid direct price competition with bigger stores. That can mean promoting particularly one-of-a-kind products on social media or websites, releasing a holiday exclusive version of a product, partnering with other businesses to offer gift baskets with an assortment of hard-to-find local products, or even showing some personality with your store’s holiday décor. Ultimately, customers come to small businesses to find that special something they can’t find anywhere else. So don’t be afraid to give them what they’re looking for!
The next most-cited motivation our respondents gave for choosing to shop small despite economic hardship was to support their local communities and help small businesses survive. As such, emphasizing your business’s local roots and ensuring you’re a force for good in the community can be a great way to build customer loyalty.
This can be as simple as displaying a “support small businesses” sign in the window, but you can go further by actively promoting and prominently displaying products that are unique to your area, developed in collaboration with other local vendors, or made by local artists. We visited a local pharmacy, for example, that showcases holiday gift ideas from local creators. The owner described how this program has helped him build both a strong local customer base and a network of partner vendors: “Every year I have new and unique items made by other local small businesses. My customers know that and wait to see what I will have to offer this year. Other local businesses also know that and contact me. I don’t even have to look them up.”
Another great way to highlight and invest in your business’s local community is by partnering with a local nonprofit. Consider pledging a percentage of profits to a local initiative or running a social media poll that allows your customers to select a local nonprofit for you to support. Especially during the holiday season, when customers may be feeling particularly charitable, they may be more eager to spend a little extra if it means helping out a worthy cause.
Finally, one of the biggest draws of patronizing a small business — especially during the holiday season — is the personalized, memorable shopping experience. It’s not just about buying presents. It’s about the atmosphere, that special, shared feeling that can only be described as the holiday spirit. And when it comes to creating that experience, simple things can make a huge difference.
Put out a plate of home-baked cookies, offer coffee or hot chocolate, or give out samples of seasonal products. You can also partner with other businesses to offer rotating photoshoots with Santa, set up eight days of Hanukkah treats and activities, hire a New Year’s fortune teller or other entertainers, or even host dedicated holiday events. One hair salon owner we interviewed throws festive holiday sales events where she sells handmade beauty accessories. An owner of a small bar told us they offer themed cocktails around the holidays. Whatever your niche, finding ways to create unique experiences will ensure that your customers remember your business (and come back again soon).
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The National Retail Federation estimates that U.S. consumers will spend more than $940 billion during the 2022 holiday season. These shoppers may be tightening their purse strings, but they still represent a massive potential market for small businesses. By proactively addressing their concerns about price, convenience, and accessibility — and by embracing the unique value that small, local businesses bring to their customers and communities — business owners can both boost revenue today and build lasting value for tomorrow.

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