The cost of living crisis in the UK has arrived, continually deepening by the day.
In an attempt to mitigate the rising costs of basics, consumers are cutting back on expenses both big and small. The nation is now on a strict budget; some are actively trying to spend less, while others are struggling to afford even basic products.
Nick Horne, sales and commercial director for Suresite Group, chats to Business Matters and discusses why retailers should prioritise innovative thinking and technology in the payments sphere, as the cost of living crisis changes consumer habits and threatens profitability.
This dramatic change in consumers’ spending habits, including where and how often they shop, what they buy and how much they spend, will have a significant knock-on effect on UK businesses – especially customer-facing SMEs. An estimated £12bn of non-essential product and service sales are expected to be wiped out this year, and many retailers are already struggling to stay profitable in the current climate. According to data from PayPal, 78% of UK SMEs consider cost of living to be the biggest threat to their business at present.
Right now, every penny spent by consumers with SMEs – who make up 99% of the UK business population – counts. It’s time to work smarter – not harder – to encourage sales, while simultaneously protecting cash flow and revenue.
Data-driven customer loyalty
One of the more obvious ways to do this is with data. When used through unique payments and loyalty apps, data has the ability to drive customer loyalty in a number of ways. As well as uncovering trends, patterns and consumer purchasing behaviours, data can give retailers the insight to engage, reward, keep and even win back customers.
Loyalty schemes that offer instant value in times of financial pressure are the ones that customers will be more likely to join – such as money off products and experiences, spend stretch offers, values on utilities and discounts for fuel. Schemes can be leveraged in the short term to offer some relief to customers during times of high inflation – in turn, driving sales and more frequent visits, and providing the business with even more data and insight.
Other analytics solutions can help retailers identify busy and quiet periods; pinpointing the best opening hours to maximise foot traffic and plan the correct staffing levels. Self-checkouts are also a great option for store-based retailers and businesses, particularly if the cost of living crisis is impacting investment on the site. While it’s key to ensure customer experience isn’t negatively affected, the cost of running the business is less, and speed of checkout increases
Buy now, play later
Another innovation proven to boost loyalty – as well as increase conversions, average order value, and customer reach – is the ‘buy now, pay later’ (BNPL) payment option. From Klarna to Clear Pay, this simple concept has grown massively since it first emerged. Offering flexible payment options, platforms such as Klarna allow customers to either spread the cost of their purchase into three interest-free instalments, or ‘try before you buy’ and pay only for what is kept, up to 30 days later – resulting in significantly lower abandonment rates.
While typically used in the electronics, fashion and apparel and beauty sectors online, the cost of living crisis will likely see the payments technology spread further afield. In the hair and beauty sector, for example, we know of businesses that are currently mitigating risk by asking customers to pay a 50% deposit on bookings over a certain amount prior to their appointment. This is simply because the business has experienced too many cancellations – often due to customers not being able to afford treatments. Having to pay for a service upfront is not typically favoured by consumers, so BNPL could be a fitting alternative here.
While great for a business’ cash flow – as they receive their money as quickly as they would on a debit card – there is a reputational risk that’s worth noting in the current cost of living crisis, and the possibility that customers may be at risk of financial problems as a result of using such services.
Why offering alternative payment methods is so important
SMEs should be opening their business up to as many alternative payment methods as possible. From cryptocurrency to physical coins – however a consumer wants to spend money, there should be no reason to turn them away.
Convenience to your door is also a growing market. Third party relationships with the likes of Snappy Shopper, for example, can help customer-facing businesses reach more people. And, while there’s a few more touch points in the transactional flow, time to settle funds is unaffected from the businesses’ perspective. If, thanks to the cost of living crisis, retailers have seen footfall decrease, it’s important to remember consumers still need their essentials. In this instance, a home delivery service – particularly when combined with free delivery – is a great way to avoid cutting down your customer pool and setting yourself apart from competition.
The key takeaway here is that innovative thinking and technology in the payments sphere is vital in helping businesses to capture and maintain a share of the available spend, boost customer confidence, and ease pressure on their finances. Struggling businesses must look at their reach, customer experience and ease of payment, while loyalty must be considered across the board in everything a retailer does.