Personal Finance

Frustrated Americans flock to loyalty programs

Frustrated Americans flock to loyalty programs

American consumers find themselves between a rock and a hard place these days.

After emerging from pandemic lockdowns, Americans wanted to get out of the house, spend some of the family savings they had accumulated in 2020-2021, and generally act as Americans do after periods of intense social pain.

That worked for a while, as the US consumer confidence index was high in 2021 – before the full impact of high inflation expanded the economy.

Now, in 2022, the Consumer Confidence Index itself is down 20% and Americans are rushing to find some sense of shopping returning to normal in a period of high consumer prices.

Enter the consumer loyalty program.

Back on the wall, American households are increasingly turning to consumer loyalty programs as a way to spend like the good old days of 2019.

According to a new study by Paytronix Systems, Inc. A digital guest experience platform, “Loyalty programs help combat inflation as 55% of restaurant loyalty customers have increased their average check volume more than the average price of an item increase.”

The report also noted that 5-17% of total business revenue is driven by the most loyal 2-3% of customers and that younger loyalty program members “are driving a generational shift in age and spending across loyalty programmes.”

Here are some additional helpful points from the report:

New horizons for loyalty. In 2021, loyalty spending reached an all-time high, showing that even with rising inflation, loyalty programs are a valuable source of revenue, Paytronix reports.

“Casual dining, casual fast food, ice cream/snacks/coffee, and Mexican food/sandwiches all saw the highest annual spend per guest (for the years that Paytronix tracks.”)

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From the top: Loyal senior guests are easily the spenders and most frequent loyalty pool visitors, and they offer businesses a much-needed lifeline during an economic downturn.

The study noted that “in convenience stores, the top 8-10% of loyalty members visit an average of 32 times a month – more than once a day – and four times compared to the next highest tier”.

More snacks: Across the board, 2021 saw the highest annual per-guest spending on snacks (such as ice cream and chocolate) of any year for which Paytronix has data.

This is good news for US businesses that are struggling as disloyal consumers shy away from spending.

โ€œOur report shows that the potential for loyalty to build relationships between customers and their favorite brands has never been greater,โ€ said Lee Barnes, chief data officer at Paytronix. From the guests, it is becoming increasingly clear that a growing cadre of loyal customers is vital to the health of the brands.โ€

“Convenience store loyalty members who visit daily demonstrate the ability of loyal customers to visit more frequently,” Barnes added.

Why loyalty programs?

Companies know that Americans love to shop digitally and love getting discounts, and they are pushing loyalty programs to give customers a good deal in tough economic times.

โ€œThe rise in loyalty programs among American consumers is partly due to the fact that more consumers are using credit cards than ever before,โ€ said Karl Jensen, founder of Compare Banks. “They also use it more often and for more purchases, so they are in a position to earn rewards for their loyalty.”

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Companies are also trying to attract more loyal businesses at a time of high inflation by offering discounts on products they already have.

โ€œOr they are making these products cheaper or making them cheaper than they were before or by offering free shipping plus other incentives like free shipping or buy one product and get another one for free โ€” as most retailers do,โ€ Jensen told TheStreet.

It’s not just about inflation – companies are getting aggressive about low prices at a time when customers are closing their wallets.

โ€œThe loyalty program business is driven in large part by inflation but also by the fact that people don’t have the time,โ€ said Michael Strelewitz, professor of marketing at St. Mary’s College in California. โ€œIf you decide to stick with one airline or an online retailer, you spend a lot less time searching online for the best price. But to earn the loyalty of customers who are trying to make their lives simpler and save money, you have to make significant savings.โ€

Some companies offer better loyalty programs than others.

“Take Lyft,” (LYFT) Strahilevitz told TheStreet. โ€œThey gave me $5 off every third ride. So unless the price is crazy, I don’t bother checking out other options like Uber when I need a ride somewhere.โ€

Young consumers are playing the loyalty game

It’s clear that demographics have an impact on consumers and their attraction to loyalty programs – especially at a time when prices are high.

โ€œYoung consumers, in particular, are finding joy in beating the system โ€” or at least feeling like they’ve beat the system,โ€ said Ted Rossman, senior industry analyst at Bankrate. โ€œIn many ways, millennials and Gen Zers were up against them. They experienced many crises in early adulthood (from the crash of the internet and 9/11 for the oldest millennials to the Great Recession, Covid, and now the highest inflation readings in 40 years).โ€

Loyalty and reward programs are one area where young people feel they are winning.

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โ€œMillennials, for example, flocked to the Chase Sapphire Reserve credit card when it was introduced in 2016,โ€ Rossman told TheStreet.

This really changed the game in terms of the benefits of luxury travel, Rossman noted, as young people love experiences like traveling and dining.

“Other financial pressures may make these costs difficult to bear, so taking advantage of loyalty programs that offer free perks is especially valuable,” he added.

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