Reproduced from an article in Retail Touchpoints.
Retail Touchpoints article from Boxzooka on Customer Loyalty
Since 2020, the global economy has sat on pins and needles as the fallout from COVID-19 rippled through 2021, 2022 and 2023. But the resilience of the American consumer prevented an all-out economic disaster. Time and time again, consumers kept the economy chugging along despite the bleak forecasts from leading economists. Early on, they were powered by pandemic relief checks from the U.S. Treasury, but even as that money faded, lockdowns hurt retailers and inflation took hold, consumers took it in stride and kept spending.
Consumers again and again have propped up the economy, fueling consistently strong growth in ecommerce and giving the retail industry an important edge in otherwise dark times. Those forces from the days of the pandemic look to continue well into 2024 as stubborn inflation and higher interest rates continue to burden brands and retailers, which are faced with the unenviable task of balancing increasing costs with what consumers can bear.
Still Carrying the Economic Burden of COVID
While their resilience throughout the last four years has been somewhat of a modern marvel, the endurance of the American consumer is not infinite.
Inflation isn’t expected to go away in 2024, although its effects are expected to be more modest than in 2022, for example, which saw an inflation rate high of 9.1%. The latest numbers show inflation was up by 3.2% in February 2024, an increase from 3.1% in January. Higher costs will undoubtedly continue to dog businesses well into this year as inflation continues to be a factor.
For consumers, the numbers shake out in a similar way. Moody’s chief economist noted that the typical American household in July 2023 spent about $202 more per month than they did a year earlier and an astounding $709 more per month than they did two years earlier. Unfortunately, this is how inflation lives on, year over year.
While the economic burden of COVID is waning, it’s still burning hotter than anyone would like, and consumers are still feeling the effects. Those same pressures that are hitting families across the country also are hitting business with higher costs.
Higher Costs All Around
The only thing that is truly certain as we continue on the long slog from the pandemic is that this year once again offers plenty of uncertainty. Most fashion industry leaders have recognized this, backed up by the expectation of more subdued growth in the economy, stubborn inflationary pressures and shaky consumer confidence, which eroded again in February.
On top of this, it continues to be more and more expensive to conduct business in the retail sector. It’s a tough situation to be sure, as there are few options other than increasing prices.
But there is a way forward, a balance that allows for costs to be recovered and keeps base customers happy and loyal.
Balancing Costs and Customer Loyalty
Most customers have been more than forgiving and mostly understanding toward their favorite brands and retailers, while maybe just a little annoyed. As costs rise, so do prices, and Americans have been largely undeterred. Don’t expect this to last forever. The deeper in we get, the more likely it is that patience will run out.
Think about it. By itself, living paycheck to paycheck with a couple of kids, a mortgage and a car payment or two is no small task. Add in an extra $3,000 a year for the everyday necessities of life, year in and year out, and it won’t be long before many have had enough and decide to limit their discretionary spending.
For that reason alone, every additional penny that is asked of customers should be put through a rigorous test. Never unilaterally hike prices. Customers expect that before a price increases, a thorough process has been undertaken to make sure the increase was needed. Here are some things to consider when it comes to protecting customer loyalty:
- Be transparent: Be open and honest with customers about the reasons for the adjustment. Explain the effect of rising costs of raw materials, operating expenses and other factors impacting the business.
- Evaluate and minimize: Assess those products most sensitive to price hikes and prioritize them, minimizing upward adjustments on core/essential items that customers value the most. Shift pricing increases toward less popular or less essential items on the product list.
- Mind your value prop: While staying true to the brand promise, look for ways that the core value proposition for customers can be enhanced in order to justify price increases. This can include things like new product features, improved quality and better customer service.
- Segment and target: Tailor pricing strategies to different customer segments based on willingness to pay, preferences and purchasing behaviors. Consider customer loyalty programs, discounts or targeted promotions to reward loyalty.
- Diversify payment options: Provide flexible payment options, including “buy now, pay later” options, which are especially helpful with higher ticket items; and
- Customer feedback: Ask for feedback from customers throughout the pricing adjustment to gauge their reactions, understand their concerns and identify areas for improvement.
These areas won’t address every customer’s discontent over higher prices. That’s more “pie in the sky” than anything else. Instead, the idea is to show them the reality of the situation through transparency while keeping yourself honest with regard to every aspect of the pricing structure. Above all, be grateful for their loyalty.
For all the positive indicators in the economy today, there are just as many that point to uncertainty remaining in the year ahead. The cost burden on business isn’t going away, so a strategic approach to solving this problem is needed.
Consumers have done enough; they’ve shouldered their share of the burden and they long for easier times. Being thoughtful in how this problem is fixed should be at the core of how we respond.
Tom Behnke is an advisor for Boxzooka as well as VP of Sales and Marketing. A strategic executive with a rich history in leadership, general management, team development and client engagement, Behnke is an eternal optimist with a results-oriented approach to all initiatives across both large organizations and startup companies.
By Tom Behnke
