There is no escaping the fact that we are in the midst of the biggest cost of living crisis in a generation, with rising inflation and energy prices putting the squeeze on household finances by around £1,000 this year alone.
Inflation is set to rise even further, February’s figure has already reached 6.2%, marking its highest point in thirty years. In Chancellor Rishi Sunak’s spring statement he announced measures to try and alleviate the situation for households, but the charge was they won’t be nearly enough to alleviate such a unique situation.
While demand for products remains high and footfall continues to increase towards pre-pandemic levels, inflation, energy bills, and rising taxes have already begun taking their toll on consumer confidence. As of this month the GfK Consumer Confidence Index is down to -31, its lowest point since late 2020. Tellingly, the most significant drops come from the outlooks for personal finances and the wider economic situation, alongside the major purchase index, indicating that consumers are already concerned about how much they have to spend.
This perfect storm of cost increases, ongoing supply chain issues and Brexit red-tape, is also continuing to impact retail. In such a position, it is inevitable that these costs are eventually passed onto the consumer through higher prices. Lush has become another high street business that has had to up their prices by an average of 8.5%, joining the likes of Tesco and many others who have recently declared similar moves. Such retailers have also warned that further increases cannot be ruled out given the uncertainty.
Therefore the situation we now face is a consumer that is tightening their wallets amid the largest income collapse since the 1970s. Combined with retailers that are under pressure to remain competitive among some of the most difficult trading conditions in recent years.
Customer loyalty is going to be hard to retain if customers are more willing to shop around to grab the best deals for products, so a number of approaches need to be considered in order to ensure you are the most attractive proposition amongst the competition.
How can retail navigate its way to success in these tricky times?
It is clear that pricing is going to be a key factor this year, both in terms of the purchasing consumer and the margin conscious business. Indeed, effective margin management has emerged as a key growth driver for 2022, and getting this right will provide a significant boost. With 34% of UK business still pricing on an ad-hoc manual basis, introducing real time, automated pricing models will be a real differentiator in these uncertain times.
While staying competitive on pricing is important, it is not always necessary to simply be the cheapest for a given product, and retailers should be careful to not get themselves into a black hole of low-margin continuous discounting. Kantar research has shown that as much as 34% of brands are in a vulnerable position where their brand equity index is not supported by their pricing models.
It is important to remember that it is not just price that determines value. Research conducted by OnePoll on behalf of Gekko Group found that 37% of Consumer Electronics (CE) consumers would be willing to spend more on those products if they receive quality service, emphasising the real importance of getting this right at all points.
In-store and online advisors can extol the virtues of relevant products and their benefits. While true of nearly all product categories, it is particularly relevant to consumer electronics and other considered purchases, where shoppers will likely have more questions or want to see a demonstration.
Continuing with electronics for example, the value of efficient and smart devices can be highlighted by knowledgeable staff who are able to answer any queries from interested customers. The long-term money saving virtues of a smart thermostat for example, are easily explained in person, allowing such a product to shine when it might otherwise fly under the radar of a price conscious shopper. Fixtures and displays should also be updated to provide real value when a representative is not feasible.
With consumers more willing to shop around than ever, it is important to explore all avenues in trying to keep them most engaged with your offering. This has led to a mini-revolution when it comes to existing loyalty schemes, particularly those of the major supermarkets.
Google search trends for ‘loyalty cards’ and ‘best savings’ have increased thanks to the rise in the cost of living, and consumers are looking for new types of schemes to entice them. Around 96% of shoppers say that they would like schemes to do more, and this goes beyond the small freebies or spend for points style many of us are used to.
Shoppers now look for personalised pricing, community outreach, and even gaming elements as a way to keep them interested. Tesco’s Clubcard prices are now a huge feature of their in-store displays, creating the desire to be involved and not miss out on potential savings. Personalisation has been a big point for Sainsbury’s, who is able to leverage its data to hand out relevant offers to customers, making them feel personally valued.
In combination with effective pricing and good customer service, the reward element is yet another way that retailers can present value against their competitors in this market.
The winners in retail this year will be stipulated by a few factors. Discounters will naturally have a headstart in attracting customers in the immediate term, but as we have explored, value is not just defined by price alone. Shoppers are also looking for quality and efficiency, with a view to being price conscious and also more environmentally friendly. These factors need to be clearly communicated across channels and all elements of the customer journey should be audited to ensure that this is the case.
Find your strengths in the current climate and promote them through all means available, while staying true to your brand will resonate with the customer whichever end of the pricing spectrum you are on. Doing this, alongside ensuring your customer experience is efficient and enjoyable, will keep consumers loyal even in these testing times.
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Photo by Karolina Grabowska