The trouble with loyalty: how the cost-of-living crisis may create the next generation of digital nomads

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By Zsuzsa Kecsmar, co-founder and chief strategy officer, Antavo Enterprise Loyalty Cloud.
  
The cost-of-living crisis poses an inescapable problem for retailers. Margins are being squeezed from every side as raw material costs spike and customers (and policy makers) demand more competitive pricing. Retailers have been trying to delicately balance their own increasing overheads while still rewarding customer loyalty and supporting customers through discounts, deals and loyalty rewards. But this still poses an inherent risk for retailers that needs to be addressed.
  
In a cost of-living crisis, customers are naturally more price conscious. Their buying habits change: they may opt for own-label rather than branded items; they may be less prone to impulse buys; they may even abandon established brand loyalties in their hunt for better value. This backdrop sets the scene for a rising challenge for retailers: how to retain and improve brand loyalty when customers are facing enormous pressure to alter their buying habits.

The current picture

Inflation figures in the UK show a small but steady fall. It may seem on the surface, as though numbers are back to going in the right direction. However, in real terms food and drinks prices are continuing to increase. The latest Consumer Price Index shows a phenomenal 18.2% rise in the twelve months to February 2023. Meanwhile, food and drink inflation reached 19.1% in March, with staple foods like white bread, sausages and cheddar cheese soaring. 
  
The cost-of-living crisis has been felt since late 2021. The Government has introduced schemes including the Cost-of Living-Payments and the Energy Bills Support Scheme to help, but households of all income levels continue to feel the squeeze because of ongoing rising prices that they simply can’t keep up with.

Can loyalty programmes plug the gap?

Customer loyalty is always important – hence the significant budgets and resources dedicated to loyalty schemes, and the intense data analysis applied to make these as personalised and beneficial as possible. Retailers of all industries understand loyalty - over 88% of respondents in Antavo’s 2023 Global Customer Report said that customer loyalty programmes will help them overcome the inflation crisis and potential recession. The keyword here being help, not resolve.
  
It’s important that brands recognise that loyalty programmes are far more than simply a way to say thank you. Their role in today’s retail world is varied and complex, supporting everything from customer acquisition to behaviour change schemes. Against a backdrop of a spending crisis, loyalty schemes can be a secret weapon in the retailer’s battle to remain front and centre of the customer’s mind. 
  
We have already observed some significant changes to a number of the UK’s best-known loyalty schemes as retailers adapt their strategies to support their customers and seek to retain their loyalty. For example, Sainsbury’s Nectar has recently rolled out discounts on hundreds of products to loyalty members, as well as keeping in place the points system that converts points into vouchers and rewards - making it more like its competitor Tesco’s Clubcard. Meanwhile, the Clubcard scheme has itself reduced the value of Clubcard points from three times to two times when cashing in in an effort to protect the retailer’s profitability. Despite Tesco’s three-month warning of the change and inclusion of an extended validity period for shoppers to use the points at a higher value, the consumer backlash was huge. 
  
Changes like these demonstrate the balancing act retailers are facing: a desire to support their customers with a cost-of-living crisis with a practical need to remain profitable. 

Using loyalty effectively

A cost-of-living crisis presents a huge problem for retailers. Customers will shift their buying patterns despite retailers’ best efforts to retain them, as considerable financial pressures begin to override every other buying decision. 
  
Hard-won brand loyalty can be eroded, so what’s important now is that retail brands look for other ways they can provide added value without ruining their profit margin.
  
Effective loyalty schemes have always been designed to reward loyalty with perks and treats, in many varied formats.  Retail loyalty schemes are about using technology and data effectively to understand and retain customers. 
  
They present a proven way for retailers to support their customers throughout their lifetimes, converting one-time shoppers into lifelong brand supporters through the power of data and personalised experience. When they’re used properly they are incredibly effective - let’s protect them for what they are and ensure the years of tech development that’s gone into making them work doesn’t fall by the wayside. 

Where data fits in

Effective loyalty schemes are built on data. Building a thorough and accurate picture of your customer is the only way to develop an impactful scheme that resonates with customers and actively builds brand loyalty. But this cannot happen without an effective data analytics function. 
  
Retailers are battling against a rising number of privacy laws and a crackdown on third-party cookies, coupled with an increasing reluctance by consumers to share their information. Data teams need to find a way to track that valuable customer insight without these tools – in fact, our Global Customer Loyalty Report 2022 saw respondents rank customer data collection as one of the top three most influential trends. 
  
Implementing a loyalty scheme allows for this data tracking; customers can share their buying habits through surveys, quizzes or simply completing their profile and in return see personalised offers which add genuine value to them. 
  
This is valuable in any economic climate, but never more so than when customers are feeling the pinch. Offering a mix of rewards helps build emotional loyalty; a good scheme should go beyond simply offering discounts or savings. Cashback, experiential rewards, even positive ‘checking in’ messages can all help build emotional loyalty at the same time as supporting purchase. 
  
Loyalty programmes are by no means a definitive answer to a cost-of-living crisis, but when used properly they can form a vital part of the solution for retailers. Using them effectively can help retailers retain their customers over the coming months and years, altering the business’ fortunes and safeguarding its future.

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