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There have been many targets of public ire during the current cost-of-living crisis, but none have been as heavily criticised as utility companies.

While most people understand that there are many factors behind rising prices, energy suppliers have borne the brunt of criticism over massive hikes in gas and electricity costs. At the same time, announcements of record profits from oil and gas giants have stoked accusations of corporate greed.

Not everyone is profiteering from the current crisis, but some companies undoubtedly are. While this may feel justified or necessary for some businesses after losses from lockdowns and other factors, there is an obvious and growing threat to the reputations of all businesses selling daily necessities, regardless of their approach. But how serious is this problem – and how can businesses protect their reputations without putting their financial security at risk?

Living dangerously

It’s no news to anyone that living expenses are currently sky-high. While energy prices have finally begun to recede across the Eurozone, they haven’t yet been reflected in the UK. Food prices meanwhile continue to rise across the continent, with prices up 15.4% year-on-year. Yet as many people struggle to heat their homes and cook their food, gas and oil companies have been busy announcing record profits. Saudi Aramco recently announced their biggest corporate profit in history, while BP and Shell saw combined profits of almost $68 billion.

A lot of ire from customers has been somewhat misdirected at energy providers, who have had to raise prices to account for rising wholesale prices from gas & oil firms. However, they have not all raised prices by the same amount, or done so in a way that is fair to consumers. Those who got stuck on variable tariffs prior to or in an early stage of the crisis have in many cases lost out to a disproportionate extent, as have those who are on pay-as-you-go meters.

Supermarkets and food & drink firms have also been widely criticised. Shrinkflation has advanced rapidly, while in many cases prices have risen at the same time that products have decreased in size or weight. Supermarkets notably stopped or reduced the provision of vouchers during the pandemic, and have only recently started to reintroduce them. They have also been struck recently by shortages of goods such as tomatoes, which many have attributed to a reluctance to pay more for products due to poor weather conditions, as well as elevated supply chain costs.

For other businesses, the struggle is balancing the need for repeat custom with the need for immediate capital after a difficult few years. The restaurant industry is one of many that are finding it difficult to survive through energy prices and business rates, while industries such as travel are trying to make up for two years of near-zero revenue, often by raising prices and reducing labour costs. At airports, this is causing staff shortages and poor customer experiences, with long delays for baggage claims, and frustrating waits at security.

Costs vs customer relationships

For some businesses, public opinion isn’t much cause for concern. Businesses who are primarily B2B or are fundamentally transactional in nature don’t rely on a positive reputation to continue to make money. They aren’t immune to public opinion – any reputational damage they take could influence others (i.e. clients or government regulators) to withdraw from deals, or impinge on profits. But with vital utilities and resources – as well as businesses of a certain size – it’s usually a safe bet that this won’t happen.

For most businesses, however, taking this kind of reputational hit isn’t sustainable, even if everyone else seems to be doing it. The first competitor that finds a means to undercut you or improve your service without raising people’s hackles could cause a mass migration. This is not to mention the risk that customers simply feel that they no longer need or can justify buying your product. Even the biggest companies aren’t immune to this – just look at the millions of people cutting back on their streaming subscriptions.

Smaller businesses are often more reliant on building good customer relationships. This is not to say that bigger businesses don’t benefit from them too – inertia can lead firms to fail to address diminishing reputation until it’s too late – but for smaller firms the timescales are shorter. This can clash with a natural propensity for short-term thinking, and addressing immediate difficulties by acting to maximise revenue. This is obviously important, but decisions should always be made within the context of long-term business continuity and growth, with an eye to both improving revenue and improving your reputation – or at least mitigating damage, and having a plan to avoid lasting effects.

How to maintain your business’ reputation

So how can businesses solve this? The glaringly obvious answer is not to take advantage of customers in the first place. Costs should be absorbed where possible in industries where price rises are likely to have a significant negative impact on people, and where doing so only reduces margins, and does not eliminate them. Where rises are necessary, they should be proportional to increases in costs, and the reasoning should be clearly communicated.

With any vital service, businesses should do what they can to mitigate price rises by offering support to more vulnerable or otherwise marginal customers. Providing support for a minority who need it can have major human impact, and give you a PR boost without hitting finances too severely. If accommodating this means raising prices elsewhere for those who can afford it, then this should be carefully considered. Otherwise, creative solutions should be sought to provide added value to customers without raising costs, or to expand your product or service offerings.

Above all else, though, transparency is key. Businesses that are forced to take decisions that will obviously frustrate or disappoint customers and clients should be ready and able to justify them. This involves connecting with customers on a number of levels, and ensuring that the message gets out to everyone. As well as issuing a statement via your website, social media, and potentially a press release, customer service personnel should be equipped with the skills they need to address complaints about the decision, and put them in a context which will placate most people.

Of course, not every decision will require or justify a major announcement. Prices go up and products change all the time, and some people may not notice the difference. But the particular sensitivity around the cost of living crisis demands that businesses step up to the plate, and evidence that they actually need to change products for a better reason than maintaining healthy profit margins. Most people are not sympathetic to shareholders, and treating customers more kindly will create long-term value, even if there’s some short-term pain.

 

Good communication is key in all aspects of business, but it’s of paramount importance in the present day. Improving your communication skills and customer service offerings can help not just to justify necessary changes, but also to moderate them by taking customer-first decisions. With these skills embedded throughout your organisation, you can keep customers and clients onside through the difficult periods, and not have to bring them back into the fold.

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Mark Fryer

18th April 2023

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