With rising inflation and increasing living costs, many retailers are struggling to stay profitable, as sales stall while the costs of goods, energy, transport and staff rise.
The majority of the stores we talk to are seeing a few common trends – cancelled subscriptions, dropping repeat purchases rates, increased time to purchase and less engagement with emails and other comms channels.
What’s really interesting is how things compare to the last economic downturn of this scale. The good news is that unemployment is nothing like the alarming levels we saw in 2008/9, and ecommerce is still hitting record highs in terms of both annual sales, and the number of consumers shopping online.
What we do have today, that wasn’t around then, however, is high levels of competition. In 2008, Shopify was only two years-old and growing its customer base from scratch; today there are several million active Shopify stores. Similarly, back then Amazon was still branching out from being purely a bookseller, whereas today there are millions of people ordering from Amazon each day. And today, we’re thankfully coming out the other side of the pandemic, but this leaves ecommerce competing not just with physical retail, but also with experiences like dining out and cinema trips that they haven’t had to consider for a while.
What does this mean for retailers?
With so many stores trying to reach customers through digital ad channels, it will become more expensive for retailers to acquire customers through their typical channels. The cost of those channels has also increased significantly in recent years, and it’s now hard to track their success thanks to recent changes and IOS updates.
It will also become harder for retailers to retain those customers with so many stores out there trying to tempt them away with introductory offers and discounts which can’t be matched without significantly eroding their profit margins. And with so many ecommerce stores around, it’s increasingly challenging to find that unique point of differentiation that makes a brand stand out to new and existing customers, and keep them emotionally connected in between purchases.
What can retailers learn from the last economic downturn?
We can learn alot from looking at how certain brands weathered the 2008 storm. Starbucks, for example, was close to failure in 2008. As other coffee providers like McDonalds improved their coffee products, selling them for cheaper prices, Starbucks was forced to close hundreds of stores. However, a smart pivot of their marketing strategy to focus on their existing customers turned things around – they launched ‘My Starbucks Idea’, an online customer community that allowed them to develop a direct line of communication with their customers, showing them that they were listening to what they wanted. This gave customers the added value and emotional connection that made them return and buy from the brand again and again. Starbucks recovered and has never looked back; they did this by meeting their competition head on and finding ways to clearly differentiate themselves and their customer experience and connect with customers on a personal level.
Act now to stay ahead
Shockingly, less than half of ecommerce businesses have taken any action to get ahead of the downward curve. Reacting and responding to this new phase of ecommerce could help retailers grow even when the economy is in decline. Driving customers through to loyal insider status and focussing on retention is key to driving growth through economic downturn. Retained customers are more loyal – our data shows that if a customer joins your loyalty programme, the chance of them returning to purchase a second time is 47% higher and that likelihood then increases with every interaction. Plus, loyalty programme members spend an average of 40% more annually than non-members, and have a 28% higher purchase frequency.
Apply the strategy across the entire the customer journey
The art of ‘retain to gain’ should be applied across the entire customer journey. Right at the start, retailers should think about what more could be done to turn guest checkouts into opted-in customers who they can continue to communicate with throughout the economic downturn even when they’re not shopping.
Once they’re engaged and enrolled, retailers should consider how they can keep these customers communicating with their brand and earning points in between purchases. Retailers should create emotional connections that make these shoppers choose their store over others who might be offering lower prices when they’re watching their spend.
The next stage is for retailers to consider how they can keep returning customers repeat purchasing and prioritising purchases with their brand, and how they can reduce the timeframe between their purchases to keep their customer lifetime value increase.
Retailers should then think about what they can do to re-engage customers who’ve become at risk and not purchased within the timeframe expected – the segment that’s most likely to grow during the economic downturn. How can they be surprised and delighted, or reminded why they shopped with the brand in the first place?
Finally, retailers should consider how their existing customers can negate the need to increase their acquisition and ad spend during a downturn – how can they be incentivised to refer and advocate to help acquire and and convert new customers more cost effectively?
In inflationary times, a ‘retain to gain’ strategy that creates genuine connections with existing as well as new customers is vital for maintaining business momentum and driving sales. Increasingly, a focus on retention – for example, utilising loyalty programmes, and onboarding new customers to those programmes – can keep customers engaged, maintain sales and keep a business growing even during uncertain times. Driving retention across the entire customer journey and placing it at the very heart of a business, is key for allowing the magic to happen.
Charlie Casey is CEO and co-founder of LoyaltyLion