Leveraging loyalty: How are retailers approaching retention in 2024?
Earlier this year, retail sales growth reached a two-and-a-half year low, according to data from the Australian Bureau of Statistics which revealed the full impact of economic pressures on not only shoppers, but also the businesses relying on them. As consumers continue to be more frugal in their purchasing habits - and competition from both local and global brands grows - retailers must find ways to incentivise loyalty amongst their existing customer base.
While the need to drive retention is a universally-held goal, the way retailers approach retention differs drastically by business size, according to SHOPLINE research. Our Unified Commerce Benchmarking Study, which sought to understand how retailers are approaching 2024, revealed some interesting insights in our approach to loyalty.
Incentivising loyalty
There are very few retailer marketers, business leaders or industry experts who downplay the value of loyalty, especially today. Most calculations suggest that customer retention is up to eight times more cost effective than customer acquisition. But while retailers are largely unanimous in their pursuit of customer loyalty, the ways in which they're attempting to incentivise it varies considerably depending on the size of a retailer's operation.
Among the strategies retailers roll out to enhance customer engagement and loyalty, membership and loyalty programs stand out as the most effective tools for incentivising repeat purchases and fostering brand advocacy with 60% of retailers. For very large retailers - those with AUD$100 million GVM (gross value merchandising) or more - this figure rises to 89%, emphasising their strategic focus on building customer loyalty and fostering personalised relationships.
On the other hand, fewer than one in three (31%) small retailers - those with a GVM of less than AUD$10 million - are using loyalty programs. Without the budgets, resources or reach of large brands, smaller businesses are disproportionately impacted by competition and economic pressures. Incentivising loyalty for them is perhaps more important than any other segment. That means greater investment in customer loyalty programs to drive repeat purchases and enhance competitiveness is critical.
Overall, 40% of retailers don't have an operational customer loyalty or membership program and nearly one in five (19%) are not even planning one. Loyalty programs offer incentives and rewards for consumers, many of whom need that, to return to their business. Their ROI and impact on bottom lines can be significant. Retailers who adopt loyalty programs are better placed to navigate uncertainty. That means overcoming their inertia is essential.
Barriers to adoption
The proportion of retailers not considering a loyalty program rises to over one in three (34%) among small retailers - those, understandably, with smaller budgets - perhaps reflecting common misconceptions around the associated costs or administrative burden. However, even among those that do deploy this strategy, they are often underdeveloped, with just 49% available across multiple channels.
Businesses that deploy an omnichannel loyalty program that recognises and rewards a customer's behaviour, whether they're in-store or online, are better placed to establish a competitive advantage. To address this gap, retailers should prioritise the implementation of comprehensive loyalty programs accessible across online and physical stores. This approach can help strengthen customer relationships, drive brand loyalty, and ultimately boost sales and profitability, all of which are crucial while consumer spending is down - and competition is up.
Retention and revenue
Global retail brands like Amazon, Temu and Shein are winning the loyalty of millions of Aussies, whether through attractive prices, unprecedented choice or rapid delivery. Amazon is investing heavily in marketing spend to acquire customers - as is Temu and Shein, who are also gamifying retail experiences - and through loyalty programs like Amazon Prime and Shop with Points, it is impacting their long-term purchasing behaviour.
Competing with them is a daunting task, but retailers can - and should - prioritise loyalty, retention and sustainable growth in the context of their own business. Incremental gains - driven by reliable, retained customers - is worth its weight in gold. We're seeing retailers who can clearly define the goals and structure of their loyalty scheme, offer meaningful rewards, gamify the experience, and integrate it across both in-store and online shopping, driving significant gains.
As economic pressures and global competition increases, the battle for brand awareness and loyalty is intensifying. The retail industry will have to contend with economic pressures for some time and competition indefinitely, but through a focus on retention and long-term, incremental and sustainable revenue, they can navigate challenges and chase growth goals.
