The only sure thing to know is that everything is changing, and AI may not be the answer.

Marketers can create the most creative and engaging promotional plans, loyalty programs and sales incentives, but if consumers are in a funk, none of it will move the needle. We’ve read and absorbed a host of economic statistics and predictive reports on the mindset of consumers today and find mixed signals on the optimism held by the population overall and how that optimism is sprinkled across age groups.

There is widespread acknowledgment of the “economic uncertainty” that abounds, and when you look at economic statistics, you will know why this is a topic that won’t go away. During the last US federal election on Nov. 3, 2020, food inflation was running at just 3.9% annually. Fast forward to March 2024, and the latest data shows food prices have risen a whopping 25.8% since then. To put that in perspective, a basket of groceries that cost $100 in November 2020 would now set you back $125.80. The all-items Consumer Price Index (CPI), a measure of economy-wide inflation, increased 0.4 percent from March 2024 to April 2024 and was up 3.4 percent from April 2023.

The real estate market has been impacted by rising interest rates. The average 30-year fixed rate reached an all-time record low of 2.65% in January 2021 before surging to 7.79% in October 2023, according to Freddie Mac. Consumers enjoyed a multi-year period of historically low interest rates and low inflation. But with each on the rise, consumers are becoming more cautious and, though not negative or pessimistic in general, they are watching family budgets and managing risk in many areas of their life.

The impact of perception can’t be denied. Even though by historical standards, today’s mortgage rates are very much on par with what homeowners have paid in the past (since Freddie Mac began tracking rates in April 1971, the median 30-year mortgage rate is 7.41%), we are now near a peak of the interest rate curve by modern standards, since the typical rate seen over the past decade is under 4%.

Interest rates have risen, and credit is harder to obtain. The average auto loan interest rates across all credit profiles range from 5.64% to 14.78% for new cars and 7.66% to 21.55% for used cars. The average credit card APR is currently just over 22%. While that may seem high, APR rates have skyrocketed in 2023 and are the highest they have been in decades. This means any interest rate below the current threshold of 22% can be considered “good.”  

While it is possible to find a low-interest-rate credit card with an APR as low as 12%, that is reserved for those with 800+ credit scores and valuable banking relationships. We are in a cycle where those with less than “perfect” credit will suffer high interest rates, and individuals with poor credit are lucky to be approved for a credit card at all. It’s easy to say, but revolving a balance on a credit card is like having a diet high in sugar content. Both lead to unwanted outcomes.

Taken together, this data paints the picture of why consumers are feeling frustrated and, in turn, cautious. In turn, it’s no surprise that multiple studies report consumers are interacting with loyalty programs differently, with living costs on the rise. One study from IAG, the owners of Avios, reveals the importance of loyalty programs to both brands and consumers during the economic downturn. The study was based on input from UK Consumers, and key findings showed:

• More than 50% said they’re actively looking for new ways to collect points and maximize the return when they spend money.
• 92% of consumers are turning to loyalty programs for everyday spending to make their money stretch further.
• Half of those surveyed said they’re searching for new ways to build their points to spend on treats they’d otherwise write off.

A new study from McKinsey highlights 9 trends they say will define the global consumer market in 2024. You can read the entire article here and the trends we noticed reinforced why it is important tailor your marketing efforts by region as well as the customer segment you prioritize most.

The article says that by 2030, 75 percent of consumers in emerging markets will be between the ages of 15 and 34. Among this group, consumers aged 18 to 24 in Asian and Middle Eastern nations, such as India and Saudi Arabia, will be highly valued by businesses as they are deemed optimistic about the economy and show pent-up demand to spend. Younger consumers in emerging markets are forecasted to be nearly twice as optimistic on average than those in advanced economies.

The population is aging around the world and despite traditional perspectives on people living on fixed incomes, aging consumers at all levels are reported to be willing to spend on discretionary items. In experiential categories such as travel, older consumers’ intent to splurge is even higher than millennials. Showing the contrast between geo-markets, wealthy aging consumers in emerging markets are more optimistic and plan to treat themselves more than wealthy aging consumers in advanced markets. The study reported that 42% of wealthy aging consumers in emerging markets said they expect to spend more on entertainment, compared with 7% of comparable consumers in Europe and 11% in the United States. This will impact spending in categories such as home improvement, airline flights, and hotel stays.

Looking at middle-income consumers, the survey results run contrary to what you expect to see based on the mixed economic data we shared at the top of this article. McKinsey found that middle-income consumers in Europe and the United States plan to splurge on discretionary items at a rate that is comparable with that of high-income consumers. This intent to splurge resonates across various categories, including experience-based categories such as travel and dining out, as well as groceries and discretionary goods.

Marketers should always be on alert to create strategies that adjust to different people groups across culturally different markets. And they should take special note that coming out of the pandemic, roughly half of consumers surveyed had switched brands or products during the pandemic. Consumers continue to engage with new brands and explore alternatives to familiar product sources, leading to a statement in the report that brand loyalty is being diluted across all economic groups.

What should we conclude from these findings? Do we give up on attempting to create loyal customers or reduce investment in customers with higher value and potential? Do we buy into vanishing brand loyalty and revert to price and discount strategies in lieu of Loyalty Marketing?

The opposite is probably true. The only way to stay on pace with consumer change is to stay connected with them in relationships. Trusted relationships are based on reciprocal value, candid communications, and use of data that benefits consumers, not just the brand.

Artificial Intelligence is obviously center stage in board room discussions. In the US, interest in AI has grown 36% year-on-year, while worries have doubled during this time. AI allows marketers to look into the past and acquire insights at a faster pace than ever before. And AI can use existing data to predict next-best-offers and other personalized offers that stretch our imagination. What AI can’t do is truly understand customer preferences without the zero-party data (ZPD) to fuel its engine.

Data-driven marketing strategies that often take the shape of loyalty programs are the best source of zero-party data we can imagine. Considering the pace of change in consumer habits that is illustrated through the McKinsey study and other sources, brands should not only have a ZPD acquisition strategy but a plan to keep that data refreshed at intervals that surpass historical best practices. Only then will marketers be able to keep pace with consumer trends and ensure that brand markets will be able to serve them in the most authentic and effective way possible.