by I was interviewed on radio last week about the impact of companies like Spotify putting up their prices, it led to an interesting conversation about discretionary income.
I first really got to understand discretionary income when I worked at NZ lotteries many years ago. We carefully followed this as we knew that if a blockbuster movie came out our sales would drop for that weekend, if we had a big Superdraw many others would see less sales for that week, like fast food, movies, video rental (when they existed) basically any business that people have a choice it’s not a staple.
What Is Discretionary Income?
Discretionary income is money left over after paying your taxes and other living expenses (rent, mortgage, food, heat, electric, clothing, etc.). Discretionary income is based on and derived from your disposable income.
For instance, your disposable income is the amount of money you have left over after you’ve paid all of your federal, state and local taxes. On the other hand, your discretionary income is the money you have left over after you’ve paid your taxes plus all of your necessary living expenses.
Why Is Discretionary Income Important in Relation to Customer Loyalty?
Discretionary income is a key factor in customer loyalty, as it helps businesses understand how much money their customers have available to them for discretionary spending. By understanding discretionary income, businesses can better target their offerings to meet the needs of their customers. This can help businesses increase customer loyalty and create a more positive customer experience.
“Every business in the discretionary income market Is currently fighting for their share”
If your business is in this market, if your services or products rely on discretionary income it is critical to know and understand who your target market is, and your customer demographics and purchasing behaviour.
Supermarkets will know very well where customers who are under mortgage or rent stress are cutting back. Lotteries will notice. Restaurants and fast food outlets will see a decrease in visitation and average spend, as will hairdressers and other beauty services as customers will push back their frequency of visits. I can go on and on.
So, what are you doing right now to ensure your customers remain loyal? Are you offering them discounts, rewards or extra services? Are you investing in understanding discretionary income and its impact on your business.
Do you know which of your customers are really struggling now, remember people don’t care what you know until they know that you care. How we supported each other through Covid was amazing and I know lots of businesses who still praise their suppliers who helped them through those tough times.
Offering discounts or add value items can be a great way to show your customers that you value their loyalty and are willing to go the extra mile to keep them coming back. At the end of the day, it’s all about showing your customers that you care. Investing in discretionary income and customer loyalty is a great way to demonstrate that you value their business and are willing to go the extra mile to ensure they have a positive experience.
Do You Know The Demographics Of Your Customers?
We also know there are a large group of customers (baby boomers 60+) who are not suffering, in fact as they have no debt like a mortgage, they own their own homes, they are going great, and their investments are earning a lot more than ever before at 4 – 5% interest. This may not be true for every baby boomer but statisically measured as a group overall, they are.
Businesses should be looking at how they are targeting this large group of customers who are actually spending more money now than they ever have. So it’s not all doom and gloom…..
There Are Always Opportunities In Any Market
We notice even more how important it is to have customers move from being passive about a business to being promoters as the passive customers are the ones most likely to shop around or stop going to you because you don’t stand out to them, where promoters are loyal and have a greater spend and higher frequency of purchase. They want you to succeed and are loyal to your product and brand.
Passive Group
An area that has been overlooked by practitioners of the NPS™ approach is the ‘satisfied or neutral’ group – the 7 & 8 ‘Passive’ scores. We have found this group to be anything but neutral. In fact, this group poses the most significant risk to business growth, but also the greatest opportunity to convert into loyal customers. We know that most businesses have the largest proportion of customers in this group.
Promoters Group
We have also found there to be a massive distinction within the NPS™ ‘Promoters’ group – the 9 & 10 scores – providing an even greater opportunity for our clients to understand exactly how to deliver a 10/10 experience – every time.
It’s no secret that customer loyalty is one of the most important factors for any business. It’s the customers who come back time and time again that help a business grow and thrive, even during tough times like the Covid-19 pandemic.
So, look after your loyal customers, how can you help them to continue to do business with you? Sometimes understanding where people are at can be really helpful. Maybe you’re in a better position than them and can contribute by adding something of value like they do in cafes, for every 10 coffees you buy you get a free one.
It becomes about rewarding continuous purchasing.
Need more information? Have a look through my previous Blogs, located on The Loyalty Zone website or contact me, I look forward to hearing from you.
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Warm Regards
Craig Cherry