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Following pandemic shutdowns, supply chain issues, market disruptions, staffing shortages, and inflation concerns, consumers in the current market face a lot of economic uncertainty. From buying a home to the cost of eggs, costs are unstable. Consumers are being more careful with spending, and brands hoping to earn that business need to provide meaningful value beyond the transaction.
Loyalty360 spoke with Steve Palladino, Chief Revenue Officer of Group FIO; Tom Madden, Managing Partner, Customer Loyalty & CRM of ICF Next; and Mary English, Senior Director of Strategic Services of The Lacek Group, about their perspectives on customer loyalty programs helping customer weather economic uncertainty and their recommendations on creating value through the programs.
How Customers Change in Uncertain Economies
With the variety of economic pressures consumers face, many are adjusting their budgets to both meet the current market and prepare for future conditions. These changes typically start with a reduction in non-essential spend in categories like entertainment, recreation, travel, or home goods.
“With the possibility of a recession on the horizon and other economic pressures, it’s natural for consumers to be more deliberate and judicious with their spending,” says English.
For brands, this change in consumer spending means finding ways to engage with customers in meaningful ways. Consumers are looking for more control over their purchase decisions.
“Shopping experiences that empower customers with flexible payment options, personalization capabilities, and access to a wider range of products have become increasingly popular,” says Palladino.
Madden adds, “The combination of post-pandemic adjustments, recovering supply chain issues, continued labor shortages, inflation, and contradicting economic predictions is new territory for both businesses and consumers, making those connections more tenuous and fragile — but more important than ever.”
While these economic changes affect every industry, their impact varies, with retail, restaurants, travel, real estate, and manufacturing being some of the hardest hit. Part of this variation also impacts the length of the uncertainty, where some industries have faced sporadic, short-term impacts and others face long-term — if not permanent — changes. No matter the length of impact, brands need to connect with their customers to meet unstable market conditions.
How Loyalty Programs Provide Value for Customers
During these uncertain economic conditions, brands need to focus their programs on increasing customer engagement. Increased engagement helps bring those customers back to pre-downturn spending when the economy stabilizes, which is especially vital for those non-essential brands affected by recessionary cutbacks.
“Now is the time to leverage customer data, hone in on your consumers’ most important emotional and rational drivers and recalibrate the mix of financial and emotional benefits your brand offers to loyalty members,” says English.
Madden adds, “During times of uncertainty, consumers need brands to show up for them in human and authentic ways.”
By leaning into shared values and beliefs, brands develop an emotional connection with their customers. Emotional loyalty builds relevancy and resilience into the customer-brand relationship. Building the emotional connection requires understanding the unique needs of customers by leveraging data, allowing brands to deliver comfort, reliability, and a sense of “normal.”
“The greatest value of effective brand and market practices is awareness,” says Palladino. “Brands should also practice and focus on engagement, communication, consistency, and personality.”
While the emotional connection encourages customers to stick with a brand, creating meaningful value helps them continue engaging with the brand even through difficult economic times. Value does not necessarily mean a discount, but some effort to stretch the customers’ wallets.
“Remind members how they can get more with less from your brand — like offering the option to combine points and dollars for a trip that they may not otherwise be able to afford or adding more upgrade opportunities,” says Madden.
Palladino adds, “Brands need to stay strong and continue to offer real value during these tough economic times, not reduce benefits or devalue points. If anything, we are advising clients to double down and offer more value and benefits and increase their customer loyalty ecosystem by adding perks, and a greater customer experience.”
“Successful programs are always in tune with their members’ preferences and behavior, balancing the value-based benefits with emotional and experiential components for long-term customer loyalty,” continues English.
How Loyalty Programs Protect Brands
By creating value and emotional connection with customers, brands earn customer spending over their competitors. Especially when finances are unstable, brands need to focus on winning that share of the market. To do this, they need to consider where to focus marketing efforts and find ways to increase brand flexibility.
When customers reduce how much they spend, businesses feel that impact. However, while many brands use this time to cut back on their own costs, the key to using loyalty as a hedge against economic uncertainty is focusing costs into connecting with loyal customers. Often, brands who overhaul the program to cut costs typically see customers leave for a competitor whose program delivers value. The Lacek Group’s English recommends “prioritizing communication and spending on high-value members — the 10% of members who account for a disproportionate amount of revenue.”
In addition to focusing communications on loyal customers, brands who deliver flexibility with their programs encourage customers to keep returning. Brands can achieve some of this flexibility through strategic partnerships and subscription models. Partnerships help brands support each other while providing customers with convenience, loyalty rewards, and/or discounts on products they use regularly. Paid subscription programs exchange an upfront cost for exclusive savings and opportunities with the brand.
“Increasing the options your customers have for earning and redeeming with your loyalty program not only shows empathy for your consumers but is also as winning proposition for your business as your program points bank can insulate you in times when transacting may be reduced, as we saw during the height of the pandemic,” says Madden.
“Finding the right mix of flexibility and personalization—with on-point offers in an omnichannel strategy with interesting product variety will help reduce customer fatigue and are keys to success that can help Brands turn the corner in 2023,” continues Palladino.
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