We teamed up with Cebr, Centre of Economics and Business Research, to conduct an extensive survey encompassing a large sample of UK consumers and senior decision makers in the retail industry. The research sheds light from both a business and consumer perspective on the value of incentives and rewards in retail today. Our analysis highlights the changing behaviour of consumers over the past 12 months, the challenges facing the sector and the strategies being used to retain customers. Finally, we provide a comprehensive outlook of the retail landscape, forecasting for the years ahead.
Let’s take a look at some of the key findings in our report.
Consumer Sentiment: Behaviourial Shifts from the Cost of Living
We surveyed 2,000 retail consumers, digging into behaviourial shifts as the economy fluctuates and there was one pressing concern among UK consumers today. A vast majority of respondents reported a change in their shopping habits as a direct result of the cost-of-living crisis. Rising costs of essential goods and services have put a strain on household budgets and it’s no surprise ‘price’ was the most common response when asking consumers about the main reasons why they shop with particular brands over others. Consumers are more likely to shop around for the best deal as they adopt a more cautious approach to their spending. And it is young people, compared to the general population, who are more likely to have reported changing their behaviour.
If consumers are expected to continue spending, they would be more likely to keep an eye out on retailers who offer a rewards programme. Six in ten consumers believe rewards programmes are relevant to their retail shopping experience. In fact, rewards programmes influence a staggering £75 billion of spending annually, equivalent to nearly 5% of overall consumer expenditure. Supermarkets made the largest contribution to this figure, at an estimated £34 billion. Consumers who do use rewards programmes are also more likely to state they were now more actively looking for better deals online, seeing a 62% share compared to 35% of non-rewards users.
A large majority of rewards programme users reported that they were satisfied with the benefits they have received. This share was highest amongst users of rewards programmes in the health and beauty subsector, where 74% of respondents stated they were satisfied. It just goes to show the significant influence of a rewards programme as it can be rewarding for both consumers and retailers.
Retailer Sentiment: A Cause for Concern
With the cost-of-living crisis looming and consumers cutting back on their spending, retailers face the challenge of not only attracting customers, but retaining them too. When researching senior decision makers, we asked the question ‘What are your top 3 challenges?’
Retail decision makers cited competing on price (40%), overhead costs (38%) and supply chain issues (35%) as the top three challenges facing retailers today. Reduced consumer demand was also cited as a key issue with 25% stating that this was a main challenge for the year ahead. In order to combat these ongoing issues, almost a third (31%) of retailers currently use rewards programmes as a way to boost customer retention, while a further fifth (20%) considered rolling out such a scheme over the past 12 months.
The most commonly adopted profit margin optimisation strategy used by businesses were discounts, suggesting firms are striving to boost sales volumes to counterbalance the impact of lower demand and higher input costs. There are however businesses that are yet to adopt a rewards programme strategy altogether, and amongst those, 37% cited set up costs as a main barrier to their business’s participation.
The Future of Retail: Stagnation and Innovative Initiatives
Given the strain we’ve seen on consumers and retailers alike, we were compelled to generate a forecast into the future of the retail industry. With the cost-of-living pressures facing consumers and the weaker margins experienced by retailers, the sector is expected to stagnate. By 2027, retail is set to be 9%, or £18.4 billion, smaller than pre-pandemic levels.
Retailers are introducing initiatives to help consumers deal with the cost of living, such as widening the range of own-brand affordable products, offering coupon schemes, freezing prices of some products, and even offering seasonal offers. This is essential to customer retention as we established consumers are shopping around to look for the best deals, so retailers must figure out a method of keeping their business enticing enough for people to come back to them.
There are worrying signs ahead as the retail sector is amongst the UK’s weakest when it comes to operating profit margins, with an industry-wide figure of just 9%. This leaves retailers acutely exposed to wider economic headwinds, such as the current cost-of-living crisis.
The Constrained Consumer
This report shows the retail industry is facing difficult challenges as retailers struggle with competition on price and supply chain issues, and consumers are faced with a significant increase in the cost of living, resulting in a change of their shopping behaviour. Looking ahead, consumers are likely to rely on reward programmes as they become more mindful of their spending, while retailers will be required to find innovative ways to ease the pressure on profit margins.
Delve deeper into our analysis by downloading the full report today, The Constrained Consumer: The Value of Incentives and Rewards for UK Retailers.