The cost-of-living crisis: a grim new normal
In August we examined the loyalty and the cost-of-living crisis and ended on a rather ominous note, predicting ‘uncertainty will be the watchword for some time to come’. Revisiting the topic three months later it seems uncertainty has been replaced by something even worse: the economic certainty that things will get worse before they get better.
As the closing months make way for Christmas, and with the crisis that our current cost of living has now become, what should retailers be permitted to expect from now until 2023? From this end, the outlook is daunting. Economists at Citi have forecast an inflation rate of 18% for 2023 – fully nine times that of the rate targeted by the Bank of England. And having initially predicted an inflation rate of 14.8% for early January 2023, forecasters at Goldman Sachs are warning that this figure could climb to as high as 22.4% over the coming year, given the energy price increases and their inevitable knock-on effects.
Time to batten down the hatches?
Looking at the negative impact this has had on spending, we can see from a UK Consumer Spending Report released by Barclays in September both the sectors which have been hardest hit, and those which have been positively impacted over the past twelve months.
As can be expected, non-essential spending has been reigned in as consumers prepare for energy increases this winter, and new spending patterns are clearly emerging. Restaurant, clothing, electronics, furniture and other home improvement spending was all down for the past year, and the trend is set to continue.
Britons are spending more on takeaways and digital subscriptions, shunning expensive evenings out in favour of homely pursuits (a report from Recurly identified 24% of UK consumers have more subscription services now than they did in 2020-202; however, the same report indicates a 39% increase in cancellations of video streaming services, resulting in an overall negative outlook).
Only the essential sectors such as grocery, pharmacy, health (and to a lesser extent, beauty) sectors still held their own or showed increased spend.
Delving into sectors and spending habits aside, the current situation will concern retailers across the board – especially where it relates to retaining customer loyalty. According to a recent report released by McKinsey, 76% of consumers who already define themselves as brand loyal say they would be open to buying from competitors if price and convenience made this more attractive. Given this prevailing trend, it is more important than ever that retailers sharpen their loyalty programmes to ensure they can communicate value, exclusivity and more personalised shopping options which can really answer their audience’s needs.
Loyalty: from nice-to-have to essential retail strategy
The evidence to support a strong loyalty programme can increasingly be seen in the data emerging from the aftermath of the COVID pandemic. More than 62% of businesses have confirmed that their loyalty programme was instrumental in helping to keep customers engaged during lockdown – especially those retailers running tiered programmes, where higher-tiered customers registered up to 30% higher purchase frequency than those with a lower tier.
As reported in Antavo’s Global Customer Loyalty Report of 2022, customers who were midway through their journey to a higher tier, and had unspent points, were less likely to abandon the brand in favour of a new one. The report underlined once again the necessity to be omnichannel – and the importance of building a seamless on- and off-line experience to maintain communication and accurate data. And whilst the need to consider the customer’s possible heightened sensitivity to price and value becomes more urgent during times of economic hardship, retailers still need to ensure they move beyond transactional-based messaging and engage their customers on an emotional level. Those retailers who can correctly gage the mood, and communicate accordingly, will be in a stronger position to retain loyalty customers through the current crisis.
According to Retail Gazette, some 42% of Britons are said to be using their loyalty programmes to combat the cost-of-living crisis, with a further 30% stating that they are not yet using them but will soon as the crisis develops. The report goes on to state over half of Brits (53%) use or gain their loyalty points through their grocery shops. Among these, the most popular reason consumers interact with retail loyalty is to save money on shopping (74%). This becomes more critical as shopper habits change, especially in the Grocery sector. Smaller, more frequent shops are now increasingly common as shoppers trim down the size of their spend in an effort to maintain control of their budgets. In this scenario, earning or redeeming loyalty points becomes more conspicuous, and all the more important. In this regard, Tesco’s Clubcard is deemed to be the best performing programme, with Asda Rewards hot on its heels.
In an uncertain retail environment, and with loyalty programmes becoming increasingly more important for cost- and value-savvy consumers, retailers would be advised to make it as attractive and as simple, as possible for their loyalty customers.
With Bink’s Payment Linked Loyalty, the assurance of knowing that every bit of spending is linked and rewarded goes a long way towards maintaining brand loyalty, especially with Christmas just around the corner.
It’s beginning to look a lot like Christmas – or is it?
In case the plethora of Christmas paraphernalia in shops isn’t sufficient reminder, the season of giving will shortly be upon us, and with it, a spending season that might not resemble those of Christmas past. However, once again, retailers are eyeing opportunities to keep loyalty customers engaged.
Asda is reported to have invested more than £73m in combating the cost-of-living crisis through launching new cost-effective product lines or initiatives such as the ‘Essential Living Hub’, an online tool for shoppers to get money-saving tips, including how to save energy, budgeting, buying and cooking smarter, and ideas for free family days out.
Waitrose has reintroduced its ‘free coffee for loyalty customers’ instore, after it was withdrawn during the pandemic.
John Lewis, in its bid to help ‘spread the cost of Christmas’ has scrapped the minimum spend for all click-and-collect orders up until late October. Similarly, unwanted gifts will now be exchanged up until late January, further easing the burden.
Iceland is offering cost-of-living crisis workshops, to help customers cook more efficiently and keep bills down. It’s also launching interest-free loans of up to £100 to help customers pay for purchases in installments.
Currys launched a new 12-Month Pay Delay, allowing shoppers both the time and space to pay for the essential tech they need.
Halfords dropped prices across all its motoring categories and rolled out a range of initiatives to reduce car care costs.
As before, the thinking is premised on delivering value, but also, a message of ‘we’re all in this together’, which, for customers feeling the pinch, and for retailers facing a shrinking share of basket size, might just be the right note for these uncertain times. For brands across the board, the coming year will be a defining one. Purpose driven messaging, which strikes the right balance of compassion, and delivers a credible, value-driven proposition across all channels, will see retailers – and their customers – surviving the current crisis. Once again, Bink sees this as an opportunity for retailers to deepen their relationship with their loyalty customers, personalise their offering and build stronger loyalty as we move towards Spring 2023.