How is the cost-of-living crisis impacting customer loyalty?

New research reveals how the cost-of-living crisis is affecting customer spending and loyalty, and how this will impact brands.

Just as we thought the world was about to return to normal after more than two years of uncertainty, along comes a global economic crisis, inflation trending upwards, and the lingering possibility of a recession commencing sooner rather than later.

Alone, the pandemic undoubtedly had an impact on how we, as consumers, buy and who we are loyal to. However, fast-forwarding to today, we find ourselves considering even more years of potential strife and, no doubt, that too is going to significantly affect customer loyalty. The latest report in the Data & Marketing Association (DMA’s) Customer Engagement series, ‘How to Win Trust and Loyalty’, reveals the outlook for customer loyalty and trust as we face increasingly tough times.

Lets delve into a few of the key points.

Spending and loyalty habits are changing:

This year’s report investigates what impact the cost-of-living crisis is likely to have. Some of the findings will come as no surprise (i.e. consumers are highly sensitive to price increases and they’re looking for switches and ways to save money) However, what is clear is that all consumers are being increasingly challenged to change their spending habits, with cut-backs being planned across the board.

Across all categories surveyed, including:

  • Eating out.
  • Buying clothes.
  • Food groceries.
  • Vehicle fuel and
  • Holidays.

Most consumers have already made changes or are planning to alter their spending habits. Over 50% of the individuals surveyed in the report labelled themselves as struggling to some degree, with one in eight already unable to stretch beyond essentials. Moving forward, for all brands, awareness of their customers and the strain that they are under is going to be vital in enabling sustainable business growth in the years to come.

While it may be evident that cutting back is a common response to the cost-of-living crisis by consumers, it is useful for brands to understand “where, how much, and why” this is happending.

For example:

  • 39% of consumers who spend on eating out are cutting back on this, versus 
  • 18% who have already stopped spending on it completely in the last six months. 
  • 21% of consumers who drink out of home have stopped spending on this, and similarly
  • 21% of consumers have stopped spending on fitness or sport. 

These practical mindsets are sculpting what engagement methods and loyalty drivers are most effective in todays market.

The report also found that, while our fundamental loyalty segmentation has remained static for several years, there are now underlying changes happening. Consumers have become more worried, and are starting to switch brands in response to cost pressures. Family budgets are being stretched and so shoppers are more inclined to actively seek out better offers as a result. Interestingly – “51% of consumers now agree that they often change their mind about what brands or shops to use as a result of deals or offers, in comparison to 49% of consumers in 2020”

41% of consumers claim that they feel less loyal to brands and companies than they did a year ago.

Uncertainty is widespread and consumers are more inclined to be disloyal. Feelings of disloyalty have increased among consumers over the past two years – “41% of consumers claiming that they feel less loyal to brands and companies than they did a year ago, in comparison to 34% in 2020”. In fact, we have already seen a change in loyalty to favoured grocery brands globally, with the more cost-conscious brands being increasingly favoured.

Strive to be responsive and proactive:

The next few years are likely to be tough – the outlook is certainly looking dismal at the present time. Consumers will maintain the desire to be loyal to the brands they love, and want to retain the habits they have built up. However, that simply may not be possible, so offers and cheap prices are likely to become more and more attractive.

For brands, that creates a challenge: to stick or to twist. E.g. To keep doing what built up a loyal customer base, or to chase possible switchers with offers. At the moment, there is probably no correct answer but rather a need to be adaptable, to be willing to vary strategy, and to react quickly when opportunities appear. 

How can we help you?

Well, to be adaptable in a way that truly enhances the efficiency and effectiveness of your business, what you need is conscientious collection and analysis of customer experience analytics. This is inclusive of but not limited to:

  • Collection of customer-level data.
  • Matching survey responses to actual behaviour, and
  • Statistical analysis that differentiates to the extent possible between correlation and causation.

Sophisticated companies that are motivated to figure out what matters most to their customers, eliminate the investments that don’t matter, and fund the ones that do will flourish and even may find themselves, when the economy balances itself out, with fewer competitors.

Contact us today for help taking your Customer Experience to the next level!