Posted on December 28, 2022

As CTO of Engage People Inc. Len Covello helps companies differentiate loyalty programs to deliver a better experience for their customers.

Although the pandemic has largely ended, retailers are continuing to navigate an unprecedented territory. We are experiencing the first prolonged period of inflation in more than 40 years, with the U.S. consumer price index rate stagnating above 7% for the last 12 months. Although rising prices have given shoppers pause, they have also created an opportunity.

Retailers can harness the technology of existing loyalty programs to effectively engage with customers as pricing pressures continue to mount. Loyalty programs can give customers flexibility and payment options to offset price increases—and retailers, in turn, can boost conversion rates and cement long-term patronage. While there are numerous benefits to investing in a loyalty program, there are five standout ways that the technology can be used to drive value during an inflationary time.

Access Alternative Payments

Using points in place of cash or credit cards to make a direct purchase or to subsidize a portion of a purchase is one of the major benefits of a loyalty program. During a time when customers are hesitant to lay down a traditional payment at checkout, points can be an attractive alternative to incentivize the close of a sale. Walmart is one major retailer that sees the value of paying with points. This year, the company gave customers the option to use points or redeem discounts at checkout through its Walmart Rewards program.

Simple APIs connect loyalty programs to the checkout experience to allow customers to view their offerings and use points in full or in part. The technology creates this experience instantly, giving customers options and flexibility when dollars are stretched thin. Enrolled loyalty members likely already have access to points or have the ability to earn them, making them an effective and reliable form of currency even as prices continue to rise.

Support Price Stability

According to research from Morning Consult's Industry Intelligence Team, two-thirds of consumers are intentionally cutting back on spending to offset higher prices. Many customers are turning to loyalty points during inflation to realize price stability, as paying with points can mitigate price increases when exchanged for goods or services. A survey from Dig Insights found that 62% of consumers are using points to manage rising costs. This has a clear benefit for the retailer as well. Increasing customer redemption can reduce the retailer's exposure to inflationary pressures and help maintain the value of points.

Connecting the loyalty program to the POS experience through the right technology can facilitate this benefit by encouraging customers to redeem points at checkout. This is as simple as leveling back up from a black coffee to a flavored coffee or latte or paying in full as a special treat.

Build Brand Trust

In a recent poll by the American Psychological Association, adults ranked inflation as a top source of stress. Brands have an opportunity to use loyalty technology to support customers through difficult times.

Consumers are struggling and anxious about how rising costs will impact their quality of life, but data can help. Retailers can use loyalty program data to create a better shopping experience and fulfill customer needs. Loyalty data can highlight shopping trends and customer tendencies to give the brand an opportunity to curate a personalized experience.

Consumer data platform Amperity has a great case study on the relationship between data and brand loyalty. The company partnered with a leading, unnamed North American airline to create a personalized and targeted loyalty experience using unique customer data. The result was a 198% increase in conversion.

Drive Engagement

The Federal Reserve Bank of Philadelphia's Survey of Professional Forecasters predicted that the annual CPI figure would remain in the 7% range through the end of 2022. As prices continue to escalate, customers will look to reduce costs by shopping at fewer stores. Retailers with loyalty programs are ripe to win that business.

Robust loyalty technology can help facilitate communication with customers through text or email. Correspondence can be personalized through data collection to successfully engage with customers based on their shopping preferences and habits and drive them to the store. Brands can leverage this feature to realize increased engagement, more conversion opportunities and greater purchasing volume, generating a considerable impact on revenue.

At Starbucks, loyalty rewards members accounted for 53% of operating revenue in the company's third fiscal quarter, and overall, the company is "not currently seeing any measurable reduction in customer spending," according to CEO Howard Schultz on the third-quarter earnings call.

Reduce Aspirational Purchases

During a period of inflation, customers become more strategic with their points. There is a propensity to spend points on small indulgences or subsidize daily purchases rather than saving up for aspirational items or services. In the current market, where half of consumers believe that loyalty programs are important to offset inflation, customers are more likely to spend their points rather than stockpiling them to splurge on a large purchase.

For brands, this is an opportunity to leverage technology to accelerate the earn-redeem cycle. When customers are incentivized to redeem points through tailored offerings, promotions and ease of use facilitated by pay-with-points options, brands are able to better manage and maintain programs and connect with customers. Beauty retailer Sephora allows customers to choose their perks, leading to increased redemption. The result is a 22% increase in cross-sell revenue and up to a 51% increase in upsell revenue.

Retailers have been using loyalty programs to compete for customers during a bull market, but the technology might be even more valuable during a time of hardship. Technology provides a method for retailers to draw customers back into the store and ultimately increase conversion opportunities. By providing a different type of loyalty experience (one focused on meeting daily needs), brands can lay the seeds for stronger customer relations that should last well beyond a trough in the market cycle. Customers should keep coming back, no matter the economic fundamentals.

Source: Forbes