Retailers’ response to the cost of living crisis is threatening to wreak havoc on the high street and beyond for years, as cash-strapped consumers increasingly ditch their loyalty to brands and they flit from store to store to seek out the best bargains.
So says the latest report in the DMA’s Customer Engagement series, which confirms what many people in the industry have been fearing, with the rise of promotions and discounting eroding hard won brand loyalty.
The DMA’s “How to Win Back Customers and (Re)Build Loyalty 2023 Report”, in association with Tapestry Research, maintains that consumers’ price sensitivity has been a long-term trend. In fact, discounts and promotions are an important driver of consumer demand, with 51% of UK adults using them to trial new brands and products (up from 44% last year).
However, there has been a major surge in recent months, with nearly two-thirds (63%) of consumers claiming they now regularly change their mind about what brands, shops and websites they use as a result of deals and offers – an all-time high since the DMA’s research began.
In addition, almost half (48%) would even ditch a brand if they stopped offering deals, also an all-time high in the research.
The report claims this is likely a key indicator as to why four-fifths (81%) of consumers stated that they spend time comparing prices before making an important purchase (up from 67% in 2022).
In fact, three-fifths (61%) of consumers feel less loyal to brands now than they did a year ago (an increase from 41% in 2022), while nearly half (48%) are even buying cheaper alternatives alongside their favourite brands.
Perhaps unsurprisingly, the most promiscuous consumer behaviour is in the “essential” categories of groceries and household goods, where loyalty has dipped the most.
An average of one in three consumers have started using cheaper grocery or household product brands alongside the ones they normally use, with a further quarter saying they have completely switched away from their normal brand.
DMA director of insight Ian Gibbs said that while the use of price promotions is a vital tool in helping businesses hit their short-term KPIs, their over-use will result in consumers becoming hooked on deals and offers, displaying the higher levels of price sensitivity (or price elasticity) that ultimately eat into profit margins.
He added: “Businesses need a cost-of-living crisis exit strategy, whereby they look to reduce the use of price promotions in the marketing mix, and instead refocus on brand and customer service-led reasons to drive loyalty to their brand.
“Despite the state of the world around them, consumers are feeling personally empowered by their ability to shop around for the best deals. A great deal might be good news for a consumer of course, but we have seen consumers starting to have concerns that lower prices might mean worse customer service – which is not good for anyone in the long run.
“Consumers want a brand that’s reliable and value for money – so, brands cannot afford to be unfit for purpose while household budgets are under pressure, especially with competition for their loyalty fiercer than ever.”
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