As Brits continue to face an inflation crisis with the cost-of-living continuing to surge, are supermarket loyalty schemes enough to retain customers? Cheetah Digital’s Jamshed Mughal, Global Head of Strategy, discusses.
Are more customers likely to join loyalty schemes because of the cost-of-living crisis?
According to pay.uk, most consumers have emerged from the pandemic with an unwavering sense of loyalty to the their favourite brands. However, the tide may be turning, as for the first time, many begin thinking about whether switching away from their current brands could help them combat the ongoing cost of living increases.
In the supermarket sector, brand loyalty is prevalent as consumers expressed a solid sense of brand loyalty (25%) and 56% of Brits are members of a supermarket loyalty programme.
According to the study “What the British want from Loyalty programmes 3.0” (Mando-Connect and YouGov), despite everything that has changed in the past 2 years, the British remain big fans of loyalty programmes and are highly engaged with the sector. However, British programmes are starting to see small declines in the number of members, no doubt driven by the changing British lifestyles and the impact that the pandemic has had on the ability of many sectors to attract and engage members during the past 2 years. In fact, the study reported a 15% decline in supermarket memberships between 2018 and 2022.
Meanwhile, according to Cheetah Digital’s recently published 2022 Digital Consumer Trends Index, even the 76% of UK consumers who define themselves as loyal to certain brands say they’d still buy from competitors if it was cheaper or more convenient to do so.
Overall, it does not appear that the cost-of-living increase has driven increased enrollment in British loyalty programs, however, existing members in loyalty programs are seeking additional value from the program sponsor or brand through additional benefits and offers.
Trends that brands should keep in mind to attract new customers are supporting local communities, sustainability, digital and omni-channel transparency, convenience, social commerce, experiences over product and bridging the gap between the on-line and off-line journey, subscription models and autonomous delivery.
What are the pros and cons to offering a loyalty scheme?
The benefits of loyalty programs include:
- Customer retention
- Increased profitability through behavior based offers to higher margin categories
- A permission-based platform for personalized communication and engagement to build emotional loyalty
- Collecting and analyzing valuable first and zero party data for consumer insights, segmentation schemes for effective resource allocation and behavior based financial projections (ROI).
The risks of loyalty programs, if they’re not executed well include:
- The ineffectiveness of the value proposition to change behavior thereby eroding margin
- Liability associated with promotional currency if not managed correctly
- Undifferentiated value propositions that don’t elevate the brand
Are loyalty programmes a short or long term solution to alleviating the effects of inflation?
Loyalty programmes should be viewed as a long-term enterprise strategy that becomes part of the company DNA, with support originating at the top with the executive suite moving all the way to the day-to-day consumer facing associates. As economic shifts occur in the marketplace, the loyalty tool kit can enhance the “ups” with higher levels of personalized benefits and experiences and can smooth out the “downs” or the effects of inflation, with added value or points-based benefits that don’t erode margin as dramatically as price slashing or mass discounts.
