Inflation – a Test of Costumer’s Loyalty. Why Does a Loyalty Program Help in Times of Crisis?
The economic crisis, high inflation and the drop in the value of the zloty are making consumers plan their household budgets more sensibly. According to the results of a GfK survey – 80% of consumers are limiting spending and looking out for savings when buying groceries and larger goods and services. The battle for customers is intensifying. One of the lifewheels available to retailers is a loyalty program.
It is well known that the vast majority of loyalty programs are based on access to special offers, promotions, or cashback, which directly translates into savings in the wallet of the club member. The perception that one can save money thanks to a loyalty program is already well ingrained in the minds of consumers. As a result, marketers are becoming bolder and more intense in emphasizing the role of loyalty programs in everyday savings, if only by summarizing the money saved on a receipt or in a mobile app. However, a loyalty program is more than just a lower price.
From the marketers’ point of view, a loyalty program is an investment that effectively contributes to stabilizing a company’s position in the market thanks to three key factors:
- Loyalty programs offer the opportunity to quickly and directly connect with customers.
- They provide access to a wealth of knowledge about customers.
- They enable the realization of perceived more attractive promotions.
Responding here and now
The unstable economic situation, increased epidemic risk and shaky supply chains make having an effective tool for immediate contact with customers essential.
Among the marketer’s available tools, communication in a loyalty program stands out for its speed of action. Its effects can be seen as soon as a text message, email or push notification is sent. We found this out, for example, during the two years of Pandemic. Informing customers about changes in store openings and closings, changing restrictions, as well as the ability to redirect traffic to the online store for many businesses proved irreplaceable at that time. An additional advantage of communication in a loyalty program is its measurability – it is relatively easy, even with just Excel, to verify whether the actions taken have had the effect we assumed.
Based on the activities of our clients, as well as other companies, we observe that the planning horizon for budgets is shortening. We are moving from annual to quarterly, and increasingly even monthly. At a time of inflation, it is not only consumers who are looking for savings. Companies are doing it too, placing their budgets in activities that guarantee profit, so they choose tools that quickly and directly affect sales. With a loyalty program, you can communicate available offers to selected groups of consumers. Targeted pre-purchase communication can yield up to 50% higher results than an offer sent to the entire base.
Of the marketer’s available palette of tools, the budget spent on communication in a loyalty program often gives the greatest return on investment in a short period of time. Experience shows that investment in this communication channel generates ROIs as high as 40-70, while communication through offline and online channels is an ROI of 10-20.
Knowledge instead of intuition
As a result of unexpected world events, when previous strategies no longer work and purchasing decisions are dictated by consumers’ limited budgets, it becomes important to monitor the market and the situation at hand. During a crisis, the best performing companies are those that can understand the changes taking place, react quickly and adapt to them. And a valuable source of data for analyzing the situation is a loyalty program.
A good loyalty program means up to 80% of transactions are not anonymous to the company. Analyzing customer behavior on a representative base of club members makes it possible – from the whole to the detail, at the level of even an individual customer – to understand how consumer behavior has changed and what the problem is. When sales drop, it’s easy to verify what’s causing it – a lower frequency of purchases, less spending overall, a reduction in the purchase of certain items, a decline in activity of any of the consumer groups, or perhaps yet another barrier. The result of an in-depth analysis of the behavior of loyalty program members is knowledge that allows the company to make faster, more effective and measurable changes to counter the crisis.
Proper interpretation of the data allows you to plan actions and take a specific action – for example, implementing a direct campaign with product recommendations to a segment of customers looking for cheaper substitutes. For example, if we observe a trend that customers are reducing the number of transactions and store visits, we can motivate them to make more purchases, such as through limited-time offers. Using speed of reach and insights, we can offer customers a different offer, tailored to their changing needs.
Analyzing the data collected through the loyalty program also allows us to more effectively control the price promotions that customers are looking for. While executing projects for various brands in many markets, we see that Poles, but also other Slavic nations, are very attentive to price reduction mechanisms.
As a result of this, marketers try to stand out from the competition and attract customers with price offers. The company, as part of its promotional activities, dumpinog offer products at a lower-than-market price for a while, but in the long term this is not sustainable by any player. An attractive promotion that will be widely available and unlimited raises many challenges for the organizer.
If a store offers an assortment at an extremely competitive price without systemically imposing limits on the unique customer and securing product availability, it will not be able to manage the cost of such a promotion and guarantee purchase opportunities for the majority of interested parties.
Effective management of promotions is the basis for retailers’ success. A loyalty program allows the price to be reduced in a quantifiable way, so that the maximum cost of implementing the promotion is known before it takes off. As a result, we are able to distribute special offers appropriately, such as by limiting the purchase of a product per consumer we identify by card in the loyalty program.
Loyalty programs can prove to be one of the more effective tools for many companies in times of economic crisis. Properly implemented, they are a way to alleviate consumer concerns about inflation.