Despite the reporting that retail sales unexpectedly rose in August, as jobless claims fell – retailers should not count on continued consumer spending into the holidays as slow holiday spending is projected.
Over one-third of 514 U.S. consumers surveyed* (35%) responded that they will spend less in the 2022 holiday season than in 2021. Half of that (17%) said they will spend more. The results align with confidence about what they will budget for holiday shopping, with 39% “less confident” and 19% “more confident” about holiday spending when comparing 2021 to 2022.
The results make sense based on the consumer price index (CPI), which has skyrocketed in the past eighteen months. It was reported that inflation is up. Additionally, data shows that the CPI increased by 0.1% in August. Eliminating food and energy costs, the inflation gauge rose 0.6%. Cost drivers were food, shelter, and medical care services, which counteracted the sharp decline in gasoline prices.
However, overall, consumers ended with less buying power as average hourly earnings adjusted for inflation rose 0.2% for the month. Yet, they remained 2.8% lower from 2021.
Yet with less buying power, consumers spent more than anticipated, driven by purchases of motor vehicles, and dining out with lower gasoline prices.
At the same time, the Federal Reserve continues to raise interest rates to fight inflation. Consumer spending may keep up as employment in the U.S. remained strong at 3.7% unemployment.
Retailers should be very cautious of slow holiday spending, even with this hint of optimism. Indeed, the best marketing strategy will be for retailers to deepen relationships with existing customers over the holiday season. Customer-led marketing still proves to deliver brands an average increase of 33% in customer lifetime value.
Here are four ways marketers can adjust activity as consumers face the headwinds of inflation.
1. Measure the incremental value of every element of marketing campaigns using control groups.
Before rolling out strategies: test, test, and test again to learn and monitor the true impact of every CX touchpoint. Knowing each CX touchpoint’s incremental value becomes a real-time guide to driving the correct prioritization of marketing tactics.
2. Knowing lifetime value can be a lifesaver.
Optimize marketing activities, and dial-up marketing focus on lifetime value. Long-term goals win in the long term. So, a long-term marketing focus is an investment in consumers’ higher likelihood of remaining loyal to the product and brand. This value-over-time strategy makes the brand more resilient to economic changes.
3. Make first-party data the first priority.
During a recession, the marketing team’s burden is compounded by the absence of third-party data and the increased stinginess of data. More and more, third-party data will be hidden behind walled gardens like Facebook’s and Google’s. First-party data is the key to creating CX that resonates. A CX personalized for each customer across every touch point makes the customer’s relationship with a brand and product as meaningful as possible.
4. Acquiring a new customer is 5X more expensive than retaining an existing one.
Don’t burn the budget on short-term customer acquisition with a minimal view into attribution (once again, walled gardens). Marketers should use their existing customer base to re-acquire churned customers and increase spending by active ones
* Results from the Optimove 2022 Consumer Holiday Shopping Survey
Pini Yakuel is the founder and CEO of Optimove, the first customer-led marketing platform.