How to ease the profit squeeze with secondary revenue streams

Household budgets are getting squeezed harder than a Bank of England stress ball right now. Inflation is at a 41-year high, driven chiefly by soaring food and energy costs. Milk, cheese and eggs are up by more than a fifth and the cost of lighting, heating and powering our homes has nearly doubled in a year. We all know that if you squeeze something hard enough, sooner or later it will pop.  

Disposable incomes are expected to fall by 4.3% in 2023. People are having to re-prioritise their spending and belts are already being drawn in. Many businesses are going to face declining sales. Nearly a million homes have cancelled services such as Netflix and Disney+ since the start of 2022. One in seven high street shops is empty. Led by Aldi and Lidl, discount retail sales are expected to grow by 6.6% to hit £34.4bn this year.

Maintaining margins as living costs climb 

Reduced consumer spending casts a shadow over online retail. This has resulted in UK businesses having to reassess their sales forecasts particularly with regards to non-essential items. Deliveroo have reduced their Gross Transaction Value forecasts from 15-25% to 4-12%, which equates to a 50% -75% reduction in growth. 

Against this backdrop, you might say that price is king. Price match schemes and ‘best offer or your money back’ deals are now common currency. But this exposes retailers to a very real risk: a top line lowered by falling prices and/or footfall and a bottom line hoisted by higher costs. This dynamic works like a vice; in its grip, getting squeezed, are retailers’ profits. No one wants them to pop. 

There are strategies retailers could adopt to improve customer ability to consume and mitigate the rising costs impact on their own margin. Smart retailers recognise that price doesn’t rule retail alone. Value is also vital. Perceptions of value are unique to individuals and determined by myriad factors, but one thing remains constant: best value doesn’t always translate to the lowest price. So how can smart retailers deliver value, promote loyalty and preserve profits as the cost-of-living crisis deepens? 

Unlocking lucrative secondary revenue streams

There are examples abound of savvy retailers easing the squeeze by capitalising on secondary revenue streams from goods or services outside their core businesses. There are many ways in which online retailers can generate ancillary revenues, however the easiest route is to sell advertising space on their websites to other brands that have different products but a similar customer base. In addition, presenting website visitors with links to goods and services associated with a retailer’s core offering but provided by a third party, they’re able to derive commissions from sales generated on affiliated websites.  

Ancillary revenues have long been a fundamental revenue stream for businesses operating in travel and hospitality and is quickly gaining popularity in the retail sector. Airlines and travel companies recognise that once a customer has booked, say, flights to Paris, it’s likely they’ll also want somewhere to stay, insurance or even tickets to the Moulin Rouge. By presenting customers with relevant offers from affiliated sites, travel companies have unlocked lucrative secondary revenue streams.  

The power of personalisation 

Although it may not be the most popular option, business leaders might consider relieving the pressure of inflation, even if it is done so at their own cost, to increase purchase frequency and value, and entice back lapsed customers.  

Personalisation plays a crucial role here. Retailers with loyalty schemes have a distinct advantage, because they can use data gathered about customers’ past behaviour to tailor the offers they present. You’d have a much better chance of tempting a customer with those Moulin Rouge tickets if they’d previously shown an interest in cabaret, for example.

Personalised calls-to-action (CTAs) are more than three times as effective as standard CTAs. They also foster customer loyalty. Tailored offers can save customers time they would have otherwise spent searching for deals and comparing prices, promoting a sense that the retailer understands their needs. This is a value that goes beyond price.  

Building customer loyalty and engagement 

The supermarkets are masters at this. The UK’s biggest, Tesco, has been profiling the wants and needs of its shoppers since the launch of its Clubcard scheme in 1995. The retailer says that more than 20 million households now have a Clubcard and, with shoppers needing one to access many promotions, 70% of Tesco’s transactions are now made through the scheme. 

This is partly about low prices, but it’s also about offering personalised deals on products the supermarkets know their customers have personal preferences for. That Morrisons and Asda – which once dismissed loyalty schemes as ‘Weapons of Mass Distraction’ – have both launched such schemes in recent months is proof of how retailers view their power.  

It’s not just the supermarkets, of course. At Webloyalty, we have helped businesses as diverse as Funky Pigeon, Wowcher, National Express and many others harness secondary revenue streams, build customer loyalty and stimulate engagement with our market-leading rewards platform.  

Webloyalty offer a number of funded cashback incentives to drive customers back to the original retailers site. In addition to the ancillary revenue generated through the sale of media space, customers would also benefit from discounted future purchases designed to incentivise increased customer engagement… and in the current economy, help ease the impact of rising inflation on their customers.  

If you want to ease the squeeze on your profits, get in touch. 

Before they pop.