Today is the day the Fed is expected to raise interest rates for the first time since 2018 amid a 40-year inflation spike — a combination sure to test loyalties to brands and merchants.
The Fed is expected to raise the federal funds rate by a quarter of a percent, but Chairman Jerome Powell has that suggested further increases could follow over the next few months if inflation doesn’t start falling soon.
While the basic idea of raising interest rates is to make borrowing more expensive, in turn lowering consumer demand which generally leads to consumer price decreases, events from Russia’s invasion of Ukraine to a COVID-19 flare up in China make outcomes less certain. Interest rate hikes and high inflation come just as much of the world appears to be shaking off the worst of the pandemic, with mask mandates ending in all 50 U.S. states by early March.
See also: Inflation Soars 7.9% to Another 40-Year High
How brands and merchants should view and respond to these economic and societal shifts depends on consumer sentiment, trust, convenience and a host of interrelated factors.
In Decoding Customer Affinity: The Customer Loyalty to Merchants Survey 2022, a PYMNTS and Toshiba collaboration, a study of nearly 2,100 U.S. consumers focused on the grocery and pharmacy sectors to explore where loyalties really lie — with merchants or brands.
Get the study: Decoding Customer Affinity: The Customer Loyalty to Merchants Survey 2022
“More than one in 10 consumers have switched their go-to pharmacy or grocer during the last year, and better digital experiences are among their top motivations for leaving their favorite merchants,” the study noted. “While proximity and lower prices were important to consumers who left their favorite merchants, other features also factored into their decision.”
Loyalty by the Numbers
Decoding Customer Affinity found that a greater share of consumers cited proximity as the most important factor driving loyalty to a pharmacy (41%) than price (16%). Grocery shoppers, on the other hand, listed price (37%) as the most important reason for their loyalty to a merchant more often than proximity (32%).
As a sample of the larger consumer population across other sectors, grocery and pharmacy are essentials that give a sense of where consumers are concentrating these important purchases.
Physical stores and ecommerce sites may be getting set up for price battle amid the current confusion as 82% of grocery shoppers and 76% of pharmacy customers shop mainly in store, PYMNTS research found.
See also: Feb Retail Sales Stall as Consumers Pour Money Into Gas Tanks
With only 18% of consumers making grocery purchases mainly online and just 22% buying pharmacy primarily online, eCommerce sites have could grab share with a pricing blitz.
While eCommerce is clearly advancing on physical, low-price strategies for a tough year aren’t on display as of yet.
Battle of the Channels
The Adobe Digital Price Index released March 10 notes, “In February 2022, online prices increased 3.6% year-over-year (YoY) and 0.1% month-over-month (MoM). This is a new record high, after the previous record in November 2021 when prices rose 3.5% YoY. It marks the 21st consecutive month of YoY online inflation.”
The answer may lie somewhere in the middle, as consumers mix-and-match physical and digital channels seeking the best deals on needed and wanted items during an economic transition.
“Consumers shopping in store also wanted simple access to online purchasing,” according to the Decoding Customer Affinity study, which added that “Notable shares of grocery shoppers (23%) and pharmacy customers (26%) saw online purchasing as important to their willingness to stay with a familiar merchant.”
With PYMNTS research finding that 37% of consumers earning more than $100,000 annually live paycheck to paycheck but are able to pay their monthly bills, and 12% live paycheck to paycheck but struggle with bills, expect the physical-digital competition to heat up.
See also: Nearly Half of Consumers Earning $100,000 a Year Live Paycheck to Paycheck
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