Retention and loyalty – how to grow when the market is down

The 2024 Australian Retail Outlook is out now. This must-read resource is packed with exclusive insights from Inside Retail’s survey of retailers about their performance, plans and predictions for the year ahead; trend analyses and advice from industry experts; and interviews with leading retailers, including Ikea, Lush, Outland Denim, Milligram, and many more, about their growth strategies in 2024 and beyond.

To give you a glimpse of what you can expect from this year’s report, we are sharing selected articles over the coming weeks. Be sure to download the 2024 Australian Retail Outlook to discover more.

It will come as no surprise to anybody in retail that achieving growth in 2024 is going to be challenging, as increased costs of living, higher mortgage interest repayments and unemployment risks negatively affect discretionary income and non-grocery retail spending.

This view is supported by KPMG’s December 2023 Retail Health Index, which suggested that a recovery in retail spending might not occur until late in 2024.

Retailers have also been hit with rising input costs eroding margins, leaving many merchandise, marketing and commerce functions wondering how they are going to achieve more with less. With tightening budgets looming, best-practice retailers will plan to make every dollar count and double down on generating growth from their existing shopper base through increased retention and loyalty.

The term ‘customer loyalty’ is commonly confused with ‘loyalty programs’.

As a retailer, you can achieve customer loyalty without having a loyalty program, and conversely, you can have a loyalty program without improving customer loyalty. Customer loyalty is an ongoing relationship with your shopper, ultimately demonstrated by how willing they are to engage with and repeatedly purchase from you versus your competitors.

Whereas a loyalty program is a structured approach to rewarding existing shoppers for their purchases through incentives.

Although loyalty programs are often the default, studies do not paint a universally encouraging picture, with reports that 80 percent of loyalty programs fail during the first two years, and two-thirds of established loyalty programs fail to deliver value, with many actually eroding value.

For those retailers with existing loyalty programs, there are several key internal and shopper-driven actions you can take to maximise ROI.

For those retailers who do not have an established loyalty program, don’t worry; there are other ways to achieve loyalty and retain shoppers without a formalised program.

An alternative approach is to focus on delivering an overall Customer Experience (CX) specifically designed to drive consistent and co-ordinated interactions across all touchpoints along the shopper journey.

Given current economic conditions impacting both shoppers and retailers, focusing increasingly on customer retention over acquisition is key to driving better outcomes and returns. A greater emphasis on value is core, but this does not have to be delivered directly through price or discounts and should recognise differences in your shoppers’ attitudes and behaviour.

Many loyalty programs are ineffective and their returns are unknown at best, and margin erosive at worst. Many retailers fall foul of the common mistakes below in failing to leverage the full value of their program.

Any loyalty strategy should consider different drivers of value across customer segments and the delivery of an overarching CX designed to eliminate points of friction and promote ease of shopping.

By Matthew Quick, Director, Technology Risk & Cyber, KPMG Australia; Lisa Bora, Partner in Charge, Clients, Growth & Markets, Consulting, KPMG Australia; and Richard Large, Director, Customer & Operations, Consulting, KPMG Australia

This story first appeared in the 2024 Australian Retail Outlook.

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