Consumer spending roared through 2021 and into 2022, but that may be about to change. After a big pandemic-related shift to online shopping, retailers and their customers face a new challenge in 2022: rapidly rising inflation.
Inflation is a global problem right now, but Australia has been hit particularly hard. From April through June, the annual rate of consumer price increase rose to 6.1%, the largest change in more than two decades and “more than twice the pace of wage growth.” At the same time, unemployment is at a 48-year low, many households stored up savings during lockdowns, and Q2 2022 consumer spending was strong. ‘
However, economists predict inflation will get worse before it recedes, and they expect consumers to be more cautious about spending. That means retailers need to reset their expectations for consumer spending over the next few quarters, understand what their customers need from them, and manage their own costs to reduce the impact of rising prices on their operations.
Consider pricing changes carefully
Despite the strong spending through June, consumers are in a cautious mood, according to a McKinsey survey taken during H1 2022. More than 80% told the research firm they’re concerned about inflation and its potential impact on their cost of living. That concern does not mean that retailers need to cut prices or switch to competing on price rather than quality or service. For example, retailers with high-income customer bases should keep in mind that wealthier Australians reported more overall optimism about the economy, per McKinsey, and these consumers tend to be less price-sensitive overall.
Retailers whose customers have lower incomes can also offer value that’s not based on providing the lowest price. This strategy can help to maintain customer engagement over the short run, until inflation calms down and consumer spending increases. Avoiding deep price cuts or competing on price can also help smaller retailers avoid a no-win competition against global retailers who have perfected the price-selection-speed trifecta. That’s especially important because inflation is driving up retailers’ costs, too.
Focus on responsive service and customer experience
A global Salesforce survey with Australian participants found that 88% of customers now believe that the experience they have with a company matters as much as the company’s products or services. ClearSale’s State of Consumer Attitudes on Ecommerce, Fraud & CX report found that while 80% of Australian shoppers feel that price keeps them shopping online rather than in stores, 64% said convenience is a deciding factor, too. Customers may start shopping on price, but a great experience can determine which company they keep doing business with.
Now is a good time to review your customer journey to see what’s easy and what needs improvement. Do you offer the fast shipping and delivery options that 62% of Australian consumers say they seek out online? Is your customer service team easy to reach and empowered to resolve issues quickly?
In particular, examine your checkout process for friction that can turn customers away. 35% of consumers have abandoned online purchases because checkout was too long or complex. One way to simplify checkout and delight customers is to add digital wallet payment options, which 76% of Australians say they always or sometimes use to pay online, per the CX survey. Adding buy now pay later (BNPL) options can make shopping easier for customers who are carefully managing their budgets.
The other potential friction point at checkout is fraud. While preventing fraud protects you and your customers, overly rigid fraud screening processes can generate false positives that reject good orders. 43% of Australian consumers in the CX survey said they’d never go back to a site that rejected their order, and nearly one-third would provide negative word-of-mouth on social media. Adapt your fraud controls to review suspicious orders before decisioning so you can avoid creating friction and churn at checkout.
Cultivate customer loyalty with rewards
Australians are standouts when it comes to using loyalty programs. While nearly two-thirds of global consumers only redeem their loyalty rewards quarterly or less often, per Salesforce, a full 70% of Australian loyalty program members say they use “most rewards and benefits their programs offer.” Roughly the same percentage say loyalty programs help them decide which brands to shop with and how often to buy, according to a survey featured by the National Retail Association.
Loyalty programs can increase customer lifetime value for businesses by encouraging repeat purchases and by collecting first-party data, with permission, about customers’ preferences. That data makes it easier to segment customers, customize offers, suggest upsells and cross-sells. It’s also a hedge against the eventual demise of third-party cookie data, which Apple has already sharply limited and which Google plans to phase out in 2024.
Like checkout, your loyalty program should be convenient and simple to use. Check your loyalty processes to make sure customers can easily review and use their rewards. Track rewards metrics to see which are most popular so you can build on that knowledge with similar new reward offers.
Because loyalty fraud is now a $1 billion per year criminal enterprise, review your security and fraud prevention processes for loyalty account access and rewards transactions.
This year’s inflation and uncertainty about how long it will persist has created a challenging post-pandemic environment for businesses and their customers. By focusing on value creation, customer experience improvement, and loyalty program enhancement, retailers can meet the moment with strategies that can retain customers, encourage loyalty, and maintain revenue growth despite the economic outlook.
Original article at: https://www.retailbiz.com.au/topics/marketing/australian-retailers-need-to-adapt-as-inflation-slows-consumer-spending/