The Consumer Price Index increased 8.5% for the year ended March 2022, so it's a good time to think about how to retain customers in times of inflation.
It's never fun to tell customers that prices are going up. But the reality is, inflation affects all aspects of the economy, and no business is immune.
Let's start by taking a look at the current inflation landscape. Then, we'll explore consumer perspectives around customer retention during times of inflation.
The Current Inflation Landscape
As mentioned above, consumer prices are up 8.5%. The major categories examined as part of this increase were food and energy.
Here are a few fast facts based on the latest Consumer Price Index as of March 2022:
- Food prices rose 8.8%, and the largest increase was in the food at home category (i.e., groceries).
- Energy prices rose 32%, and the largest increases were in the fuel oil and gasoline categories.
- Prices for items outside of food and energy rose 6.5% and the largest increase was in the shelter category.
So, how do you keep customers happy and prevent churn in an environment where prices are on the rise? HubSpot recently conducted a survey of 100 consumers across the U.S. to learn more about consumer purchase behavior during times like these.
We'll review the results of that survey next.
How to Retain Customers in Times of Inflation
According to a recent HubSpot survey of 100 consumers across the U.S., 62% of consumers said inflation costs have caused them to change brands in the past two years. The top three business strategies that would encourage consumers to stay loyal to a brand despite rising inflation costs include product discounts of freebies, customer loyalty or rewards programs, and high quality products or services.
OK, let's dig a little deeper into those results.
Top 3 Ways to Increase Brand Loyalty During Inflation
As shown in the image below, 62% of consumers said inflation costs have caused them to change brands in the past two years.
This same group was asked about the factors that would encourage them to stick with a brand regardless of rising inflation costs. The next image shows the distribution of their answers.
Let's go through the top three strategies in more detail.
1. Product Discounts or Freebies
While combating rising costs and offering discounts may seem counterintuitive, customers want to find value in the way they're spending money. Especially during inflation when the purchasing power of money is low.
Based on the survey, 62% of consumers said that product discounts or freebies would help encourage brand loyalty during times of inflation.
Even if your company isn't able to offer discounts or free gifts as often, try to find strategic ways to provide savings without affecting your bottom line.
For example: If you're giving out fewer promotions, make them more efficient. Create targeted, personalized offers for consumers based on spending behaviors — such as cart abandonment or purchase frequency.
Also, be deliberate when it comes to seasonal or holiday promotions. Do some research to determine how seasonality impacts consumer buying habits, and prioritize the events your customers care about the most.
2. Customer Loyalty or Rewards Programs
In addition to product promotions, 55% of consumers said that loyalty or rewards programs would motivate them to choose one brand over another during inflation periods. This makes sense because these types of programs give customers an incentive to make repeat purchases.
Loyalty programs are your way of rewarding customers for their, well, loyalty to your business. During inflated times, consumers are likely making the tough decisions when it comes to choosing which brands to stick with. Showing customers you appreciate them can go a long way toward retention.
As a pro tip, try going digital with your rewards program. And keep it simple. Even the infamous loyalty punch cards (read: buy ten items, get one free) now have digital options that you can integrate right into your existing website or mobile app.
3. High Quality Products or Services
Product quality has a pretty big influence on brand loyalty during inflation as well. In fact, it's tied with rewards programs based on our survey. We found that 55% of consumers are also more likely to stay true to brands with high quality products and services despite rising inflation costs.
Naturally, as a business owner, you're going to be looking for ways to decrease supply chain expenses at times like these. But make sure you don't sacrifice the quality of your products in the process.
One way you can try to keep consumer prices down while still meeting the necessary quality demands is by experimenting with price tiers and packaging options. Both strategies allow you to segment your product offerings at different price points.
For example, let's say you're selling a product for $10. You could bundle three of the same product for $3 each ($1 savings total). Or offer a monthly subscription where customers can set up recurring purchases for that product at a lower cost — say $8 a month.
Again, be sure to look into the implications of price changes on your bottom line before making any big decisions.
I simply couldn't wrap up these survey results without giving an honorable mention to providing excellent customer service during difficult times. And it's actually next on the list when it comes to consumer brand loyalty during times of inflation.
We can never doubt the power of putting the customer first.
More on that ahead.
Preparing Your Customer Retention Strategy
The number one rule in planning your customer retention strategy is to make sure you put the customer first.
In the below episode of the "Entrepreneurs on Fire" podcast series, hosted by the HubSpot Podcast Network, Chris Ducker discusses how to future-proof your business in times of uncertainty (like inflation) using a customer-first approach. Ducker refers to himself as a 'serial entrepreneur'.
One of my favorite quotes from the episode is: "Your vibe attracts your tribe. Once you have that tribe, if you don't put them first, you're already on your way to losing the game. Plain and simple."
In this context:
- Vibe = your brand
- Tribe = your customers
Hear more from Ducker in the episode below:
Additionally, make sure you continue to reassess your customer base as the consumer pricing landscape continues to shift. Track key changes in consumer and market behavior. Look out for differences in the way customers are making purchase decisions — both with your brand and in comparison to competitors.
This can ultimately help drive the development of your customer-first strategy. Plus, it can help inform your promotional or reward tactics, product mix, and packaging options.
And don't forget, communication is key. Keep your customers informed on price changes and how your products stack against competitors. After all, quality over price, right? At least according to the 55% of consumers from our survey.
Inflation can be difficult to navigate, but there are ways to reduce churn and increase customer satisfaction with your brand. It's important to understand your customers and their needs if you expect to retain them in times of inflation.