Smaller Retailers Without Rewards Programs Risk Losing Inflation-Weary Customers

Everyone loves a bargain, but small- and medium-sized business (SMB) retailers have been pulling back from promotional codes and rewards recently. As noted in proprietary data prepared for PYMNTS’ collaboration with Cybersource, “2023 Global Digital Shopping Index,” SMBs offer rewards and coupons at around half the rate of their larger competitors. Promo codes fare a bit better; SMBs offer them around one-third less.

The same survey finds a huge gap in satisfaction between consumers using promo codes within their shopping experience and those who do not, at 84% versus 60% respectively. Dropping promo and coupon codes may be an understandable adjustment, especially when it comes to the small business segment of the retail sector. Consumers are cutting back on discretionary spending overall; 74% of consumers have decreased their nonessential retail purchases. SMBs, which generally run on tighter margins than large retailers, may also be seeking to hold onto every penny possible in order to ride out the current inflationary storm.

However, cutting down or doing away with rewards may be a mistake in the present climate. The small revenue loss by, for example, the occasional, exclusive promo code provided to previous customers or newsletter subscribers may be more than made up for in repeat business.

Big retail already believes in the power of providing discounts. When surveyed, 79% of the segment say that consumers would be very or extremely likely to switch merchants if they didn’t provide digital coupons and rewards.

With Main Street retail success now tied to both online and in-store sales, SMBs in the sector compete with large retailers for online market share in the same space. Calculating the repeat business value of returning customers lured by the occasional code may prove to be a worthy retention investment.

Further PYMNTS’ research on consumer sentiment has found that shoppers categorized as persuadable, who are neither dedicated deal-chasers nor die-hard loyalists, may be lured by promotions. Unlike deal-chasers, who are simply intent on accessing the best bargains, this consumer segment also reports considering convenience as a factor when choosing merchants, and so has the potential to become repeat customers without always needing the lowest price as an enticement. Other features that could turn this “malleable middle” into loyal shoppers include increased payment options and easy site navigation.

In this continued ultra-competitive retail space in which consumers seek to cut costs at every corner, merchants seeking to incentivize repeat business may want to consider this consumer behavior in their strategy. Promo codes may cut into an immediate sale, but the lifetime spend of a repeat customer taking advantage of these periodic discounts could more than make up for it.