Customer loyalty in recessions: In economic downturns, what happens to your customers?

Sara Yonker

July 27, 2022

3 reasons to prioritize customer loyalty now

All eyes are on the economy - including your customers’. With inflation increasing at record rates, interest rates rising, and the consumer confidence index on a downward slide, it’s time to strategize about keeping your existing customers loyal despite economic volatility.

What does economic uncertainty mean for your business? To prepare, you need to think of what the current economic conditions mean for your customers - both the ones you have and the ones you hope to gain. Brand loyalty matters more than ever, since customer retention costs your company less than customer acquisition. 

How can you cultivate loyal customers? Here are three things to consider:

1. Customer experience has suffered in the pandemic and ensuing supply-chain disruptions

During the onset of the COVID-19 pandemic, customers experienced unprecedented disruptions that haven’t ended. Businesses struggled with regulations, staffing shortages, and supply delays. Buyers grew to expect customer service problems, even if they didn’t like it. 

But after two years, customers that were more understanding earlier in the pandemic may be losing their patience, according to a Wall Street Journal analysis. 

Keep that in mind when evaluating your customer experience strategy. Work to remedy disruptions quickly, address problems with candor and speed, and smooth out friction in your customer journey

You can also work to build customer loyalty by creating a customer loyalty program that encourages repeat purchases or a referral program that encourages customers to receive discounts by sharing about your company with friends. 

2. Buyers - and customers - change behavior based on how the economy affects them.

It’s critical to understand how your customers may reevaluate their priorities, shift spending patterns, and assess value. If you fail to understand these things about your customer data, you can’t prepare for how an economic downturn will change their behaviors and put retaining customers at risk. 

So what can you expect from customers in a recession?  To answer that, we look back to the 2008 economic collapse.  In a 2009 study, researchers found that nearly all consumers changed buying behaviors, but how they changed - such as delaying big purchases, forgoing buying luxuries, or switching from preferred brands to cheaper alternatives - varied dramatically based on their personal reactions to the economic climate.

The study found: 

  • Buyers hardest hit  by the economy - say if they’re in an industry full of layoffs or otherwise suffering - had a “slam on the breaks” reaction that led them to opt for cheaper brands for everyday essentials, sharply cut “treats” and delay all investments and long-term purchases
  • Buyers who felt the pinch of recession but weren’t directly affected tended to sometimes still buy preferred essential brands, but shopped for deals or settled for less preferred brands. They cut down on treats, repaired rather than replaced long-term purchases, and curtailed expendables.

3. Customer loyalty becomes more fragile 

Your customer experience always matters - but even more so when economic factors can make your product or service seem like a luxury or less attractive than an inexpensive competitor. Customer service in recessions can suffer, so you need to actively protect against that. 

It’s more than just cultivating happy customers and repeat customers. It means actively preventing customers from having a negative experience, which gives your customers yet another reason to switch companies, cancel existing accounts, or stop buying from you.

Research from our partners at Qualtrics found that 80% of customers reporting changing brands after negative customer experiences - and for 43% of them, a single bad experience was all it took. 

Recession-proof your business by improving customer experience

All these factors contribute to a growing demand from customers: they expect exceptional, personalized service that, above all else, is frustration-free. How do you provide that? (Especially when simply doing business has gotten more difficult?)

  • Pay attention to your customers’ price concerns. 
  • Intervene at the earliest signs of churn risk.
  • Make their customer service experience effortless.

Interested in how you can use conversation analytics to identify and prevent churn risk? Learn more here.

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