Importance of Customer Loyalty Programs in a Recession

Economic downturns create uncertainty, forcing businesses to rethink their strategies. While cutting costs is common, reducing investment in customer retention can be a costly mistake. Loyalty programs provide stability, fostering repeat purchases and emotional connections with customers when spending is cautious.

A time of crisis is also a time of opportunity. The world has gone through several economic downturns and this is not going to be the last one. Interestingly, during the previous recessions, we’ve seen brands deliver landmark loyalty innovations that have won customers and critics alike. For instance, during the 80s recession, American Airlines introduced the frequent fliers program, revolutionizing the travel rewards industry forever. Similarly, the ’90s downturn gave rise to card-based benefits and reward programs, which have been with us until recently, when digital made everything paperless.

In times of recession, brands that prioritize customer loyalty outperform competitors, ensuring higher retention rates and long-term revenue stability. Whether through personalized rewards or exclusive experiences, loyalty programs keep customers engaged and invested, helping businesses navigate financial uncertainty with confidence.

Why a Recession is the Best Time to Strengthen Customer Loyalty

Most brands spend up to 90% of marketing spends to acquire new customers while only about 10% is spent on customer retention and loyalty, but 70% of business growth comes from existing customers!

In such a scenario, with marketing budgets getting slashed, it makes absolute sense to increase focus on customer retention and focus more on customer loyalty.

With access to zero and first-party customer data, brands can now build loyalty ecosystems that reward each interaction and meet customers wherever they stand in their brand journey. With rewards that run parallel to the customer journey, it is truly possible to enable it all – inspiring the initial purchase, incentivizing and improving purchase frequency, rewarding customers for long-term engagement, and building participation for social causes beyond the transactional purview.

• Experiential Rewards: Driving Customer Retention in Uncertain Times

Let’s move beyond the narrative that value equals cheap deals. If a brand can determine what its customers value, it can create meaningful rewards and offer valuable experiences. Consider the XPLR Pass Loyalty Program from outdoor gear retailer The North Face.

The program gives members a chance to earn extra points for exploring iconic places like National parks, monuments, and more. With access to exclusive products, limited-time collections, and an opportunity to field-test purchases, XPLR Pass is a great example of creating value without getting into cheap deals.

• Hyper-Personalization: The Key to Customer Loyalty During a Recession

This is likely a year of changing consumer behaviors, so brands must give consumers compelling reasons to trust, engage and return. Look at delivering personalized interactions built around the customer’s unique preferences. A case in point would be the mobile brand O2 which gives privileged access to its best customers for top rock concerts playing in The O2 Arena.

• Omnichannel Loyalty: Engaging Customers Across Every Touchpoint

Incentivize customers in ways that prepone their loyalty participation. The Canadian shoe brand Poppy Barley’s rewards program gives away points for engagement – like creating an account, subscribing to SMS, following on Instagram, Facebook and TikTok, and tagging the brand on social channels. A customer can gather 500+ rewards points by simply participating in engagement activities.

Incentivizing customers beyond spend is a great way to prepone loyalty and getting them to engage months in advance. Other ways being increased point utility, limited-time exclusives, and offering a points-plus-cash option.

Emotional Loyalty: The Competitive Edge in Economic Downturns

When a brand is able to create great personalized experiences which become cherished memories for the customer, emotional loyalty is realized. Think of the ice cream shop you stop by occasionally, the brand of sneakers you have three pairs of for your early morning runs, and the make of your first car which you still recommend to family and friends without hesitation. By experiencing a promise in a unique way, customers develop preference and affinity for a brand, beyond its products and services.

• Emotional loyalists are not here for the discounts and are largely unswayed by competitor offers and more-affordable options. They typically concentrate on spending more with brands they trust. Research shows that customers with an emotional relationship with a brand have a 306% higher lifetime value.

• When the market sentiment isn’t positive, consumers can be critical of brand communication and promises, but consider word of mouth seriously. Brand loyalists are also vocal brand advocates, and nudge their peers towards purchase consideration.

Whatever the impact of economic changes, consumers will continue to invest in the products and experiences that hold meaning for them. Frank Hamlin, Tuesday Morning, pointed out “The biggest mistake is not making sure that loyalty is a company-wide initiative”. When a brand adopts a culture of care, every touchpoint can be explored for potential loyalty impact and role in creating an honest-to-goodness customer loyalty.

The Future of Loyalty in a Shifting Economy

As economic uncertainty continues into 2025, businesses that prioritize customer retention through effective loyalty programs will have a competitive edge. A well-structured loyalty strategy not only secures repeat business but also builds trust, ensuring long-term success even during downturns.

Rather than cutting back on loyalty investments, brands should optimize and refine their programs to deepen customer engagement. By focusing on value-driven rewards, personalization, and emotional loyalty, businesses can emerge from economic challenges stronger than ever. Capillary’s loyalty solutions help brands create seamless, personalized experiences that foster long-lasting loyalty.

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Jubin Mehta is the Associate Director of Marketing at Capillary Technologies. He is a full stack marketer with 10+ years of experience as a tech journalist and B2B SaaS marketer. Also a meditation instructor, he is a proponent of non-dual philosophy. He can be reached out on Twitter @jub_in.