Should you tell your customers when your business is struggling?

When you are a business owner, is it good to drive an expensive car or not? Will it attract customers by signalling your success or will it remind them they will be funding your lavish lifestyle?

I’ve often wondered this about real estate agents, for example, the majority of whom seem to drive late model European vehicles.

So I was interested to read new research that probed the benefits and risks of signalling your success as a service firm. In particular, the researchers investigated two ways people tend to gauge your success: how busy you are and how wealthy you seem. 

How busy you are

When you are a service firm, time is perishable. If that table at your restaurant or the hour of your consulting day isn’t booked, you lose that chance to make money. Making the most of your ‘billable’ time is therefore important.

It’s no surprise that signalling you are busy is, therefore, a good thing. It suggests people trust you, thereby increasing the odds new clients will trust you too. 

How wealthy you seem

There’s no question that some businesses are doing it tough. Economic conditions such as inflation, interest rates, and the cost of labour and raw materials are placing a strain on business and personal finances.

The question is whether signalling how tough you’re doing it can be a good or bad thing. For example, does hearing how city cafes are struggling with the drop in workday traffic make people want to spend more as a result? Should you post on social media that you need more work?

To answer that question, researchers showed 418 New Yorkers three Yelp restaurant reviews and had them choose which restaurant they preferred.

One of the reviews was modified to vary how busy and resource-poor the restaurant seemed. For example, in the poor condition, the review mentioned how the restaurant had been on the verge of closing many times, and how inexpensive meals were. In the time-poor version, it was described as being very busy and suggested booking ahead.

Then, so the task seemed less hypothetical, participants were told they could possibly win a $30 voucher to spend at their restaurant of choice. 

Here’s what happened.

• In the poor condition, the restaurant was perceived as warmer than others.
• In the busy condition, the restaurant was perceived as more competent than others.
• When the restaurant was both busy and poor, people said they’d be more likely to go than when it was just poor or just busy.

Struggle can be attractive

What’s interesting about this study is that it gives hope to businesses that are struggling. Your lack of resources can be perceived as a positive, particularly in B2C contexts. Customers will tend to think you value relationships over profit, and that you are friendly and trustworthy. All the better if you are busy, because this bolsters how competent you seem.

In a B2B context, where the priority is an economic rather than social exchange, being busy (and therefore competent) is more likely to be valued over resource scarcity (signalling warmth). 

So, should you drive around town in an expensive car? It will depend on how you wish to be perceived by your customers. If I’m looking for a kind, relationship-minded real estate agent, it could be a real turn-off. If I want someone to drive a killer price, then they should probably drive a fancy rig.

In summary:

• It’s okay to signal you aren’t flush with cash because people will tend to ascribe warmth to you.
• It’s good to signal you are time-poor because people will think you are competent.
• It’s best to signal both because this increases the odds they’ll want to work with you.

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