Why 2023 Is the Year of Loyalty Marketing
As inflation bites, mining your existing customer base is a more cost-effective way to drive sales.
“In an environment where many purchasing decisions will come with additional cognitive load (hunting for the best deal) and pain (increased prices) to the consumer, a known brand is appealing.”
From fashion to fresh food, everything is getting more expensive in 2023 – and that includes the cost of acquiring new customers.
Thanks to rising inflation and interest rates, customers are only spending once they’ve researched a product or service in-depth – and they’re shopping more conservatively, believes Andrew Fisher, the co-founder of customer data platform LoyPal.
“A certain cohort of customers has always shopped around for the best deals, but we’ll see a lot more of that this year,” he says. “Convenience will be less important than cost for the majority of more price-sensitive customers.”
Rising acquisition costs
If your brand relies heavily on paid social media acquisition, life will start to get a whole lot more expensive for you, too. When customers spend more time researching online, acquisition costs increase.
In fact, acquisition costs have been climbing steadily for a while, thanks to the proliferation of brands competing for eyeballs online and the recent changes to privacy regulations, which make it more difficult for brands to track and target audiences across social media.
Recent US research revealed that customer acquisition costs (CAC) have rocketed from $9 in 2013 to $29 in 2022, a 222 per cent increase.
Those brands that do continue to focus on digital acquisition are also having to contend with the fragmentation of media platforms. Long gone are the days when a savvy company could sling money at paid campaigns on Facebook/Twitter/Instagram and wait for sales to rise.
“As we know, TikTok is commanding greater attention than ever and Twitter is going through a period of implosion,” says Fisher. “Media buys are going to be far more fragmented and some of the pricing power that brands may have had from a consolidated buy will be diluted.”
“Personally,” he adds, “I think that in 2023, brands need to get back to the job of marketing rather than media buying.”
Growing pressure on margins
Rising acquisition costs aren’t the only headache facing brands in 2023.
“With China now in the grip of a huge COVID-19 exit wave, supply chains on many goods are going to go through yet another round of pain,” says fellow LoyPal co-founder James Bennett.
“Managing this is going to soak up a lot of time and attention from core business and other activities, which will make working strategically more difficult.”
In some ways, it’s a perfect storm: inflationary and supply chain pressures are squeezing margins at the same time customers are buying less and acquisition costs are rising.
Some brands are already responding with “shrinkflation” (producing a smaller or reduced-quality version of a product for the same retail price), but that in itself brings risk, says Bennett.
“It might work okay for consumables, but it will result in quality compromises in apparel, for example, which may have a longer-term effect on brand health.”
The genius of loyalty marketing
In this market, engaging with the customers you already have becomes a good business strategy. Retention costs less than acquisition – because you already have a customer relationship – which helps top-line expenses. At the same time, customers who are feeling more circumspect about their spending are more likely to buy from a brand they already know and trust.
“In an environment where many purchasing decisions will come with additional cognitive load (hunting for the best deal) and pain (increased prices) to the consumer, a known brand is appealing,” says Fisher. “It helps limit the potential for buyer’s regret.”
The problem is that many brands employ a one-size-fits-all approach to customer loyalty. Take email marketing, for example, where many brands send blanket emails to their entire customer base.
Fisher explains that segmenting customers according to purchasing behaviour and then targeting marketing communications to each segment yields far better results.
Where LoyPal comes in
LoyPal is a customer data platform that uses segmentation to drive customer loyalty and results. On average, LoyPal increases customer loyalty by 19 per cent, saving on acquisition costs and deepening a brand’s relationship with its customers.
“I think now is a great time for brands to explore the relationship between marketing and technology – for example, by consolidating customer data from all touchpoints to get a clearer idea of behaviour,” says Fisher.
“Looking at customer service – and building clienteling opportunities into the journey – is also a good move.”
Even supply chain issues can be turned to your advantage. “Understanding where bottlenecks will arise and where there’s flex in taking new products to market around this can create large amounts of upside for a business and deliver better retention strategies as a result.”