Consumers are increasingly questioning how they spend (and how they can cut back) due to rising living costs. In the UK, BRC figures show sales growth is slowing, with March 2022 seeing a rise of 3.1%, down on a 6.7% rise the month previously.
For brands, tighter budgets could have an impact on customer loyalty. And with Covid already shaking up how consumers shop, we could see a further change in buying behaviour, with brands potentially losing long-standing customers as a result.
So, how can brands combat this issue, and what can they do to retain customers? I recently spoke with James Malia, UK MD of digital gift card company Prezzee, to hear his thoughts on the matter, and gain some insight into how brands can potentially drive loyalty in today’s economic climate.
Brands need to react to a shift in consumer mentality
“[Consumers] still need to pay their mortgage or rent and continue buying food for the family every week,” says Malia. “It’s the leftovers which are vulnerable. The nice-to-haves which, if absolutely necessary, could be cut from the budget without too much of an impact on every-day life.”
“Cancelling a gym subscription and choosing to go running a few times a week, or cutting one of the many subscription services most households have access to.”
Malia suggests that it is how brands react to this shift in mentality which will shape the next 12 months. “Those who recognise the difficulties faced by a large portion of the UK will see increased customer loyalty,” he suggests, “compared to another brand which increases its prices in-line with inflation.”
“Brands should be aiming to fix the roof before it’s raining. It’s all well and good realising you’re losing customers due to the cost of living and then trying to win them back with offers, but a proactive loyalty scheme will have already planted the seeds for retention long ago,” says Malia.
He gives an example of a family considering where they could cut back on their monthly spend. “A business on that list which may have been close to the chopping block, may be saved by a realisation that it sent a £10 gift voucher to say happy birthday a few months ago,” he explains. “They may not even have spent the voucher yet, but that memory of being rewarded when other companies didn’t do so goes a long way.”
“A brand that delivers on customer experience and exceeds their expectations when it comes to rewarding loyalty is much more likely to continue succeeding, even when money is tight,” says Malia.
Partnering with subscription services to drive loyalty
Subscription services, according to Malia, are “something most of us have bought into but it’s also something which can be easily cut.”
“If the average household has subscriptions to Netflix, Amazon Prime, Spotify, Disney+ and several other entertainment packages, it’s an easy place to start when reducing spending.”
Malia also proposes that brands could look at strategically partnering with these subscription services in order to increase loyalty themselves.
“Knowing that households may be considering cutting back on the cost of such subscription services, if the likes of Vodafone or EE offered two-years of Netflix or Spotify within my contract, I can remove that cost from my monthly bills without losing the service. One company retains my business while another benefits from my loyalty,” he explains.
For the subscription services, he again says it comes down to ‘proactive reward schemes’. “People with four or five subscriptions may look to cut half of them to save money – if one has proactively rewarded their loyalty in the past, they’ll usually be the last to be cut.”
Focusing on value for consumers across the board
“What might work for a globally recognised subscription service may not work for more traditional brands,” concedes Malia. However, he suggests that loyalty still boils down to value – but only where it matters most to the customer.
“What many would appreciate is the company they invest their money in proactively asking where they’d like to see improvements,” he explains. “If the majority highlight CX as a focus area, that’s where the improvements will lie. Knowing improvements are on the way, based on customer feedback, can improve loyalty in the short-term, while the improvements themselves will have a more long-term impact.”
“What brands can’t afford to do now is increase prices to then invest in improvements. At best, people will see a minimal price increase when times are tight as annoying but at worst, if the business has millions upon millions of customers, it’s deemed a money-grab and actively costs them custom.”
Acquisition versus retention is likely to be another dilemma for brands right now. Malia suggests that, in the current climate, retention should be where brands focus the majority of their efforts.
“Acquisition of course comes with increased revenue but that counts for nothing if the once loyal customer base has left after feeling unloved during a time when money is tight and spending decisions have to be made,” he says. “On the other hand, focusing on rewarding loyal customers in the moments that matter actually goes a long way to supporting acquisition naturally.”
Additionally, he says that word of mouth remains a key driver, again going back to the importance of overall customer experience.
“Think about conversations you’ve had with friends and family about retailers or restaurants. How many times have you been told by a loved one that they’ve received a loyalty bonus from a business and have found yourself looking at becoming a member yourself? It’s that natural word of mouth around businesses showing they care that’s like gold dust right now.”
Giving consumers clear and accessible goals
So, what brands out there are leading in customer loyalty right now?
Malia suggests that a lot of brands offering basic points-based schemes need to re-consider their value to consumers. “I’m a strong believer in loyalty schemes which give people context or goals which clearly highlights what they’re working towards. It’s all well and good amassing ‘points’ at a supermarket chain but does anyone really understand what the points equate to?” he asks.
Finally, Malia cites the employee insurance provider Yulife as a leading example, whose loyalty programme rewards healthy living with its wellbeing currency YoCoin.
“Users can clearly see that with every walk, run or work-out they do, they’re closer to a reward – whether that’s a free coffee, money off a shop at a major supermarket or access to entertainment subscription services.”
With consumers perhaps cutting back on little luxuries or fun experiences, Malia emphasises the importance of small but meaningful and accessible rewards. “Having clear goals in place will drive loyalty, as people are less likely to cancel if they know they’re only a week or so away from a free trip to the cinema.”