Loyalty programs drive consumer spending and provide a buffer against a possible recession in 2023

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Inflation is eating into the revenue growth of businesses across industry verticals. With the soaring cost of living, consumer disposable income is expected to remain under pressure in 2023 and the rising probability of a potential recession will further dampen the prospects of a revival in discretionary spending in the short term. Consequently, loyalty programs are projected to a significant role in driving consumer spending in 2023. These trends have started to emerge in the market as indicated by the financial results announced by retailers like Tesco in the United Kingdom.

• In April 2023, Tesco announced the financial results for FY 2022 – 23 and revealed that the inflation ate into the profit margins. The operating profit at its retail stores declined 7% year over year. The efforts to offer products at a lower price amid the rising inflation ate away the margins for Tesco.
• The firm, however, kept the sales higher by stepping up its discounting efforts to maintain customer loyalty. Over the last year, the firm disbursed 90 million coupons to over 4 million shoppers. Furthermore, the Clubcard loyalty program also reached an 80% penetration in the face of mounting economic pressure.

Going forward, as inflation continues to grow in the United Kingdom, the firm is expected to increase its focus on personalization to further drive loyalty program penetration and sales growth. In addition to driving consumer spending, loyalty programs are also expected to provide a buffer against a possible recession in 2023, especially for airline carriers.

In the United States, airline carriers relied heavily on loyalty programs for revenue during the global pandemic outbreak. Amid the current macroeconomic environment, PayNXT360 expects the income from loyalty programs to hold up for airline carriers, if the US-based economy slips into recession.

For several years now, loyalty programs have been a major revenue generator for many of the leading airline carriers in the United States. Through the sales of miles to third-party partners, largely credit-card issuing banks who award miles to their customers, airline carriers have been making millions of dollars in additional revenue. The higher the consumers spend, more the miles they earn, and therefore, the greater will the amount paid by partners to airline carriers.

Even during the pandemic, when people curtailed flying, they kept on spending on airline loyalty credit cards. This meant that airline carriers were still earning revenue, thanks to their loyalty programs. This trend is expected to continue if the slowdown in the economy cuts into travel demand.

• According to PayNXT360 estimates, travel and hospitality industry generates about 8-13% of revenues from strategic payment and other partners.

To generate more revenue, these airline carriers are seeking to forge more partnerships and strategic collaborations. United Airlines, for instance, has entered into a collaboration with firms like Norton and SimpliSafe. Alaska Airlines had collaborated with a mortgage firm that is offering 50,000 miles to customers when they secure a loan through its partner. Delta Air Lines also has alliances with Starbucks and Instacart in the United States.

These partnerships have resulted in a strong reoccurring revenue stream for airline carriers over the years. Consequently, the focus on forging more such alliances is expected to remain robust in 2023.

• In February 2023, JetBlue Travel Products, the subsidiary of JetBlue, announced a strategic collaboration with Briggs & Riley and Solo. These partnerships not only provide customers with a chance to buy luggage and bags on Paisly.com but also allows them an opportunity to earn TrueBlue points.

These strategic collaborations, coupled with the growing focus of retailers on personalized loyalty programs, are expected to drive innovation and a competitive landscape in the loyalty and rewards programs industry in 2023. Furthermore, the popularity of these loyalty programs, such as the one offered by Tesco, is expected to lead to a higher number of brands revamping their programs to better meet the needs of their customers. All of these factors will, therefore, keep aiding the growth of the global loyalty and rewards program market from the short to medium-term perspective. 

To know more and gain a deeper understanding of the global loyalty program market, click here.