The pandemic has changed purchasing patterns and some new consumer habits are here to stay. Your business needs to adapt. But how?

New consumer habits are affecting all businesses, including those that cater to consumers (B2C) and those that serve other companies (B2B).

We’ve seen various new consumer trends emerge since the start of the COVID-19 pandemic. Here are the most striking.

Essentials-only budgets

Consumers are taking a cautious approach to spending and focusing more on savings. When they do open their wallets, it’s for essentials. Non-essential spending remains below pre-pandemic levels.

Online shopping

Online sales have increased in most consumer categories. In fact, Quebec recorded a 118% year-over-year spike in e-commerce transactions in 2020. The most dramatic increase was in online sales of household appliances, electronics, building materials and home renovation products, which skyrocketed by 625%.

Consumers have also largely embraced home delivery and in-store pick-up services. These changes are likely to be permanent.

Wavering loyalty

The crisis has shaken consumers’ loyalty to their pre-COVID favourites. In some cases, it’s because businesses didn’t have a robust online offer, while other reasons include complicated return policies and product supply issues. Faced with these obstacles, consumers were forced to turn to the competitors that had strong digital channels, including for essential expenses such as groceries or household goods.

Safety first

It comes as no surprise that the pandemic has led to a sharp rise in consumer concern for public health and safety. More than ever before, people want to know what businesses are doing to keep them safe.

Buy local

The pandemic has triggered a shift toward seeking products made and grown locally. This is particularly true in Quebec, where interest in buying local has risen faster than elsewhere in Canada [Léger and Lg2 Survey, May 2020]. In addition, several government and regional initiatives—such as Panier bleu and Stratégie nationale d’achat d’aliments québécois—have come out in recent months to encourage Quebecers to choose local products and services.

Does your business still offer what customers want?

To find out how these new trends have impacted your customer base, you’ve got to connect with your target audience, using whatever means possible. Your options include calling key customers directly, sending a courtesy email or short survey to your subscribers, or posting an open-ended question on social media. The simplest solutions are often the best ones. Once you’ve gauged their new needs and expectations, you’ll be ready to adjust your offer.

Realigning your value proposition

Your value proposition describes how you meet customer needs and differentiate yourself from the competition. It’s what makes you unique.

By defining or redefining your value proposition, you can gain a better understanding of your target market, while ensuring that you still offer what they’re looking for. In addition to being the basis for your sales pitch, your value proposition can help inform your communications content and digital strategy.

Given the recent shift in consumer habits, it’s essential to make sure your value proposition is still relevant. To get started, ask yourself the following:

  • What are your customers looking to accomplish?
  • What are their pain points?
  • What are their expectations in terms of value or perks?

Next, ask yourself:

  • How do your products and services create value for customers?
  • How do they address consumer irritants?

The answers to these questions can help you figure out how to effectively appeal to prospective and existing customers.

The exercise might also make you realize that your business model is outdated and no longer meets the needs of your customers. If that’s the case, you’ll have to reshape your business model to meet evolving needs.

Simple and relatively inexpensive changes can have a major impact on customer satisfaction, translating into improved retention rates.

With change happening all around us, maintaining the status quo simply isn’t an option.

Next article

The International Accounting Standards Board (IASB) has published Interest Rate Benchmark Reform – Phase 2 (Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16), finalizing its response to the ongoing reform of interest rate benchmarks around the world. The amendments aim to assist reporting entities to provide investors with useful information about the effects of the reform on their financial statements.

Many interbank offered rates (IBORs) are expected to be replaced by new benchmark risk-free rates (RFRs) in future reporting periods. This has resulted in the IASB needing to address potential financial reporting implications for both before and after the reform of an interest rate benchmark. The IASB has completed this project in two stages, the first one focussing on providing relief for hedging relationships before the reform takes place, which was finalized in September 2019, by publishing Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 39 and IFRS 7). This second set of amendments focuses on issues arising post replacement, i.e., when the existing interest rate benchmark is actually replaced with alternative benchmark rates.

Download the IFRS Adviser Alert for more information.

Next article

Emilio B. Imbriglio
President and Chief Executive Officer | FCPA, FCA, MBA, CFE, ICD.D.

Here is an excerpt of the letter sent by Emilio B. Imbriglio, our President and CEO, to the Honourable Chrystia Freeland, Minister of Finance of Canada, on September 25, 2020.

Subject: Public finance and the recovery: Overcoming two challenges for competitiveness and prosperity in Canada

Dear Minister,

On behalf of Raymond Chabot Grant Thornton, I would first like to extend our warmest congratulations on your recent appointment as Minister of Finance. I wish you every success in your new position, particularly in the current context, which requires structural actions for the Canadian economy and its wealth-creating businesses. Your leadership and talent will certainly contribute to giving our economy and Canada’s economic drivers the momentum they need to succeed.

Further to the Throne Speech, where economic recovery is a priority, I would like to share with you some thoughts that aim to contribute to the competitiveness and sustainability of businesses, especially SMEs, while fostering a more competitive business climate. Raymond Chabot Grant Thornton has been acting as a trusted advisor to entrepreneurs and leaders for over 70 years, and particularly since Day 1 of the pandemic. Our team of 2,800 professionals in more than 100 offices across Quebec and in the Ottawa and Edmundston regions share the same ambition: to give local businesses the means to achieve their ambitions.

You can read the full letter (in French) in our pages.

25 Sep 2020  |  Written by :

Mr. Imbriglio is partner and the President & CEO of Raymond Chabot Grant Thornton. He is in charge...

See the profile

Next article

How should employers consider Canada’s Emergency Wage Subsidy in setting their transfer prices?

As of September 13, 2020, close to 1.1M Canadian employers had applied for the Canada Emergency Wage Subsidy (“CEWS”) to cope with the effect of the Covid19 pandemic and the subsequent lockdown. This wage subsidy is available for Canadian companies that experienced significant decrease in revenues since March 2020.

According to the most recent version of the CEWS, Canadian employer can be eligible to the wage subsidy if the decrease in their qualifying revenue meet the required threshold for the period, even if all or substantially all of their revenues are from sales to a non-resident corporation, who then sells to arm’s length customers.

Consequently, it is important for these Canadian eligible employers to understand how to treat the wage subsidy for transfer pricing purposes.

TPM-17: CRA’s Position on the Treatment of Government Assistance for Transfer Pricing Purposes

CRA’s position on the treatment of government assistance in the context of a transfer pricing analysis is described in a transfer pricing memorandum (TPM-17) that was published back in March 2016.

According to TPM-17, when a taxpayer receiving governmental assistance uses a cost-based transfer pricing methodology to determine the transfer price of goods, services, or intangibles sold to a non-arm’s length non-resident person, the cost base should not be reduced by the amount of the government assistance received, unless there is reliable evidence that arm’s length parties would have done so given the specific facts and circumstances.

CRA has confirmed that its position has not changed because of the COVID-19 pandemic at a roundtable held on September 15 by the Canadian branch of International Fiscal Association.

In fact, a representant of the Competent Authority Services Division mentioned that CRA expected the temporary assistance provided to Canadian taxpayers to remain in Canada, and not be used to reduce the transfer prices charged to foreign entities. He also did not provide examples of the market evidences that CRA expected from a taxpayer that decides to offset its costs against the assistance received in determining its transfer prices.

In light of this, it seems that it will be very difficult for a Canadian employer that receives the CEWS or other COVID-19-related government assistance to justify a reduction of the transfer prices charged to a related non-resident.

Reliable Evidence?

One of the biggest complain about TPM-17 is that the term “reliable evidence” is not defined in the document, and that there is no clear indication on how to demonstrate that cost-base used in the calculation of the transfer prices should be reduced by the amount of the assistance received because arm’s length parties would have done so. This critic is often heard from multinational group that have invested in R&D service center in Canada to benefit from the tax incentives provided by all levels of governments.

Although not specifically mentioned in TPM-17, it is reasonable to think that a reliable evidence would be a situation where a taxpayer that provides services to both related and arm’s length parties is able to demonstrate that its profitability on services provided to related parties is in line with the profitability on services provided to arm’s length parties.

Reliable evidence is even harder to demonstrate when a Canadian taxpayer acts as a service provider for the exclusive benefit of related entities. In that situation, one way to demonstrate that the profit earned by the service provider is arm’s length could be to calculate the markup on total costs (not reduced by the amount of government assistance received), and see if this lower markup on costs is still within an arm’s length range of markup on costs earned by comparable service providers.

22 Sep 2020  |  Written by :

Marie-Pierre Pelletier is a taxation expert at Raymond Chabot Grant Thornton. Contact her today!

See the profile