Is the cost-of-living crisis damaging brand loyalty?31 May, 20234mins
As interest rates were pushed up again last week in the UK and the cost-of-living crisis continues to have a negative effect on wage packets and bank balances across the globe, can people afford to stay loyal to their favourite brands any longer or are companies losing market share to less well-known cheaper alternatives?
According to recent data, 41% of consumers feel less loyal to brands and companies than they did a year ago, with 47% of FMCG consumers now choosing own-brand items to tackle rising prices and just 2% prioritising big-name brands when grocery shopping. Almost one in five have also switched supermarkets to save on increasing food costs.
In addition, 41% of consumers are spending less on eating out and other leisure experiences, and just under a quarter have recently cancelled subscriptions. In the last year, 16% switched energy suppliers, and 14% switched mobile providers.
Even 76% of people who define themselves as 'brand-loyal' say they would still buy from competitors if it were cheaper or more convenient in the current economic climate.
So clearly, a reduction in disposable income is profoundly affecting customer retention and brand switching.
What can marketers do about it?
In some respects, marketers' hands are tied with many businesses cutting marketing budgets to balance their books in the struggling economic landscape.
However, as discussed in our previous article on the topic, investing in marketing, and spending what budget you have wisely during an economic downturn, can be beneficial in the long run rather than reducing activity and losing market share, so it is a tricky balancing act for marketing professionals.
Some brands are attempting to absorb rising costs through their supply chain, and many food and beverage companies are opting for shrinkage of products to retain the existing price point. This can be an effective way to maintain customers. Still, marketers must be mindful not to reduce quality and quantity to the extent that customers feel cheated and move away from a brand anyway if they think it is no longer a superior product. It might also mean that these previously loyal customers may not return later, even when they can afford to do so.
Another option for marketers is to focus on promotion. Loyalty schemes can be most effective for customer retention. Multi-buy discounts and short-term deals and offers can also be successful, with just over half of consumers recently surveyed agreeing that they often change their mind about which brand to buy or which shop to visit as a result of promotional activity.
Finally, a push to add value for the customer can be a big draw when purchasing. With sustainability now a significant consumer consideration, ensuring products are produced ethically and highlighting this in advertising campaigns can keep some buyers loyal to a brand even if the price point is higher than its competitors. Another way to add value is through convenience. If your product is easily accessible in a wide range of locations and good stock levels are maintained, this can also be a way to retain customers and attract new ones, especially as cost-of-living issues have a knock-on effect to supply chains for some brands.
Whatever the future holds, it would seem that for the short term at least, customer retention is taking a massive hit as people look for ways to tighten the purse strings and make their money go further but perhaps with a little innovative thinking and the right marketing activity, big-brands can weather the storm and hang on to those much needed loyal customers or at least attract them back when the economy starts to recover, hopefully in the not-too-distant future.
In this article, we've used FMCG as the focus, but the issues and ideas discussed draw clear parallels with brand loyalty in other industries—something which marketers in all sectors should be considering.
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