MANY families in the UK are expected to endure a difficult financial period over the next 18 months at least. Inflation is at its highest level in 40 years, while there’s also a strong chance of a recession in the next two years in the UK. Businesses will be fearing that this will affect consumer purchasing power. But what exactly is consumer purchasing power and what might it mean for your business?
What exactly is consumer purchasing power?
Consumer purchasing power refers to how much value consumers can buy with their money. It’s a measure of how inflation alters consumers’ ability to buy. For instance, if inflation rises but your income remains the same, your purchasing power will fall. Alternatively, if inflation remains at a consistent level while your income dramatically improves, you’ll suddenly find yourself with much higher purchasing power. When we talk about consumer purchasing power, it’s this balance between inflation and income, but measured across a population. You can see the latest consumer trends relating to this, here. For businesses to grow and thrive, they’ll need consumers to have purchasing power.
Cost of living rising
The UK is in a cost-of-living crisis that will impact consumer purchasing power. Following the lingering effects of the pandemic and Russia’s invasion of Ukraine, many goods are scarce, leading to inflation outstripping wage rises. Inflation will reach around 10 per cent for poorer households. While consumer spending is predicted to rise by 5.1 per cent in 2022, by 2023 this figure is predicted to fall to 1.7 per cent. And with the backdrop of the ONS finding that 92 per cent of Brits had seen their weekly grocery bill go up, businesses will be anxious about the coming 18 months.
What this means for UK businesses
The danger for UK businesses is that their sales and income will fall, directly impacting their profits. To navigate this difficult period, UK businesses will need to work hard to attract and retain customers. They’ll need to understand new spending habits clearly and tailor their strategy to fit these new behaviours. One way to achieve this could be through a loyalty program. A loyalty program is where you offer your customers discounts and perks for spending a certain amount on your products or after they’ve used your services a set number of times. This can be an excellent way of incentivising loyalty and building your customer base.
UK businesses will be watching the news of inflation anxiously. But by altering your strategy and trying out schemes such as a loyalty program, you can put yourself in a position to succeed in these difficult times.