U.S. consumers find themselves between a rock and a hard place these days.
Coming out of the pandemic lockdowns, Americans wanted to get out of the house, spend some of the household savings they accumulated in 2020-2021, and generally behave as Americans do after periods of abundant social pain.
That worked for a while, as the U.S. Consumer Sentiment Index was up big in 2021 – before the full impact of high inflation broadsided the economy.
Now, in 2022, that same consumer sentiment index is down 20% and Americans are scrambling to find some sense of shopping normalcy in a period of hefty consumer prices.
Enter the consumer loyalty program.
Backs to the wall, U.S. households are increasingly turning to consumer loyalty programs as a means of spending like it’s the good old days of 2019.
According to a new study by Paytronix Systems, Inc., a digital guest experience platform, “loyalty programs are helping combat inflation as 55% of restaurant loyalty customers increased their average check size more than the price of the average item increases.”
The report also noted that anywhere from 5 to 17% of overall business revenue is driven by the most loyal 2 to 3% of customers and that younger loyalty program members “are driving a generational shift in age and spending across loyalty programs.”
Here are some additional eye-opening takeaways from the report:
New heights for loyalty. In 2021, loyalty spending hit the highest level on record, demonstrating that even with rising inflation, loyalty programs are a valuable source of revenue, Paytronix reports.
“Casual dining, fast-casual, ice cream/snack/coffee, and Mexican/sandwich concepts all saw the highest annual spend per guest (for the years tracked by Paytronix.)"
From the top: Top loyalty guests are easily the highest spenders and the most frequent loyalty group visitors, and they offer businesses a much-needed lifeline during an economic downturn.
“At convenience stores, the top 8-10% of loyalty members visit an average of 32 times a month — more than once a day — and four times as often as the next highest tier,” the study noted.
More snacking: Across the board, 2021 saw the highest annual spend per guest for snacks (think ice cream and chocolate) of any year for which Paytronix has data.
That’s good news for U.S. businesses suffering as non-loyalty consumers shy away from spending.
“Our report shows the potential of loyalty to build relationships between customers and their favorite brands has never been greater," said Paytronix chief data officer Lee Barnes. "Between the ongoing generational shift and the critical importance of the top tier of 2 to 3% of guests, it's become increasingly clear that growing cadres of loyal customers are vital for the health of brands."
"The loyalty members of convenience stores who visit daily show the potential of loyalty customers to visit more often," Barnes added.
Why Loyalty Programs?
Companies know that Americans love to shop digitally and love to get discounts, and are pushing loyalty programs to give customers a good deal in tough economic times.
“The rise in loyalty programs among U.S. consumers is partly due to the fact that more consumers are using credit cards than ever before,” said Compare Banks founder Carl Jensen. “They're also using them more often and for more purchases, so they're in a position to earn rewards for their loyalty.”
Companies are also trying to attract more loyalty businesses in a time of high inflation by offering discounts on products they already have.
“Or, they’re making those products cheaper or making them cheaper than they were before or by offering free shipping on top of other incentives like free shipping or buying one product and getting another free - as most retailers do,” Jensen told TheStreet.
It’s not just inflation – businesses are getting aggressive about low prices at a time when customers are snapping their wallets shut.
“Loyalty program activity is driven in large part by inflation but also the fact that people are short for time,” said Saint Mary's College of California marketing professor Michael Strahilevitz. “If you decide to stick to just one airline or one online retailer, you spend a lot less time online researching what's the best price. But to win the loyalty of customers who are trying to make their life simpler and save money, you have to make the savings substantial.”
Some companies do loyalty programs better than others.
“Take Lyft,” (LYFT) Strahilevitz told TheStreet. “They give me a $5 discount on every third ride. Consequently, unless the price is crazy I don't even bother to check other options such as Uber when I need a ride somewhere.”
Young Consumers Playing the Loyalty Game
Demographics evidently have an impact on consumers and their affinity for loyalty programs – especially at a time when prices are high.
“Young consumers, in particular, find enjoyment in beating the system – or at least feeling like they beat the system,” said Bankrate senior industry analyst Ted Rossman. “In many ways, millennials and Gen Z’ers have had the deck stacked against them. They’ve endured several crises in their early adulthood (ranging from the dot-com bust and 9/11 for the oldest millennials to the Great Recession, covid, and now the highest inflation readings in 40 years).”
Loyalty and rewards programs are one area where young adults feel like they’re winning.
“Millennials, for example, flocked to the Chase Sapphire Reserve credit card when it was introduced in 2016,” Rossman told TheStreet.
That really changed the game with respect to luxury travel benefits, as young adults love experiences such as travel and dining, Rossman noted.
“Other financial pressures can make these difficult to afford, so taking advantage of loyalty programs that offer free perks is especially valuable,” he added.
