UK consumers might be increasingly reliant on loyalty schemes during the current economic crisis but it seems they are also playing a crucial role for retailers, influencing an estimated £74.9bn of spending annually, nearly half (£34.1bn) of which is spent in supermarkets.
So says a new report by shopping rewards experts Webloyalty and economists Cebr, “The Constrained Consumer”, which examines bespoke analysis from 250 senior UK retail decision makers as well as 2,000 UK adults.
Cost pressure is the clear dominating issue impacting retailers in 2023. Competing on price (41%), overhead costs (38%) and supply chain issues, including input costs (36%), squeezed margins (26%), and weak consumer demand (26%) are the top five challenges cited by retailers in their outlook for this year.
The report also reveals the increasingly important role that rewards programmes play from a business perspective in the retail sector, with almost a third (31.3%) of retailers implementing a rewards programme within their business in the UK and an additional fifth (20.5%) have considered implementing one over the past year.
Retailers offering a rewards programme are significantly less likely to be concerned by key retail challenges in 2023.
For instance, 37% of those with a loyalty scheme said competing on price was a concern compared to 42.9% of retailers who do not run programmes. Meanwhile, 18.5% of those with a loyalty scheme said squeezed margins were a concern v 29.4% of retailers who do not run programmes and 16% with a loyalty scheme said weak consumer demand was a concern compared to 29.9% of retailers without one.
The most commonly adopted profit margin optimisation strategy used by businesses over the past 12 months has been offering discounts (35.9%), suggesting firms are striving to boost sales volume to counterbalance the impact of lower demand and higher input costs.
The retail sector is among the UK’s weakest when it comes to operating profit margins, with an industry-wide figure of just 9.3%. This leaves retailers acutely exposed to wider economic headwinds such as the current cost of living crisis.
The use of rewards programmes is widespread, with 84.5% of the population using at least one. Rewards programme users reported an average frequency of use of once every 3.2 days. Among retail subsectors, supermarkets saw the most widespread use, with 75.7% of respondents stating that they use a rewards programme, while health and beauty retailers saw a 47.2% share.
Six in ten consumers believe rewards programmes are relevant to their retail shopping experience. Consumers that use rewards programmes are more likely to state they are now more actively looking for better deals online, seeing a 62.4% share compared to 34.6% of non-rewards users.
Webloyalty managing director for Northern Europe Dominic West said: “Retailers have been hit with a steady stream of cost and supply issues affecting their businesses since the start of the pandemic, and any post-lockdown optimism has now given way to concerns over rising costs, inflation and cost-of-living pressures.
“As consumer preferences and shopping behaviours continue to undergo significant transformations, understanding the role rewards programmes and incentives can play have become paramount for businesses seeking to gain a competitive edge.
“With less disposable income to go around, many long-term strategies need some adjusting, not least optimising margins amid reduced consumer spending, as well as looking at more innovative ways to entice customer retention. Price-sensitivity, retention and protecting profitability are clearly key issues that need to be on boardroom agendas in 2023 and beyond.
“More than ever, shoppers are looking for ways to make budgets go further, and the cost of living crisis has forced almost everyone to look at how they are spending and saving money, and how changes can be made.
“At the moment, mindful spending is here to stay, and this will impact how people continue to shop and of course this understandably will lead to behavioural changes that stay with us and become imbedded. Shoppers that use rewards programmes are miles ahead in seeking out the best deals online and ultimately saving money on their purchases.”
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