The Cost of Living Crunch Is Rewriting Customer Loyalty and Engagement

The Reserve Bank of Australia lifted the cash rate again this week to 4.35%. It’s another 25 basis points, but the impact is far from marginal. For households already feeling the strain, this compounds the pressure. When you layer in rising fuel costs and persistent inflation, it’s clear that many Australians are now making more deliberate, and often more constrained, spending decisions.

We’re not talking about a temporary dip in sentiment. This is a structural shift in behaviour. Consumers are actively adapting. The adoption of Private label brands is rising rapidly as shoppers prioritise acceptable quality at a lower cost. Non-essential purchases are being reduced or delayed altogether. Discount-seeking behaviour is becoming the norm, not the exception. In fact, the majority of Australians now identify as bargain hunters, which tells you everything you need to know about the current mindset. The macro numbers reinforce this. Discretionary spend has dropped significantly across key retail categories, while essential categories like groceries continue to grow. Energy costs have surged year on year, putting further pressure on disposable income. This is creating a reallocation of spend, not just a reduction. Customers aren’t disappearing, but they are becoming far more selective in where and how they spend.

Interestingly, loyalty programs are growing through this period. On the surface, that might seem counterintuitive. But when you look closer, it makes perfect sense. The nature of loyalty is changing. It’s no longer about long-term point accumulation or aspirational rewards. It’s about immediate, tangible value. Programs like Everyday Rewards and Flybuys continue to play a critical role because they deliver real savings in everyday categories like fuel and groceries. They align directly with the pressures consumers are facing right now. This shift from “earn now, redeem later” to “save now” is one of the most important strategic changes happening in loyalty today. Customers are prioritising instant gratification, not out of impatience, but out of necessity. The perceived value of a program is increasingly tied to how quickly and easily it can reduce today’s cost of living.

At the same time, it would be a mistake to assume that price is the only lever that matters. While price dominates the headline, a significant portion of perceived value still comes from non-price factors. Convenience, service, ease of checkout, and the overall experience all continue to play a role. Brands that default to competing purely on price often find themselves trapped in a cycle of discounting that becomes increasingly difficult to sustain. This is where many businesses are getting it wrong. Faced with declining demand, the instinctive reaction is to increase promotional intensity. Discounts go up, campaigns become more frequent, and short-term conversion improves. On paper, this can look like success. Revenue lifts, sales volumes increase, and the business appears to be responding effectively to market conditions.

Underneath that surface, a different story is often unfolding. Margins are eroding. Customers are being trained to wait for offers. And critically, many businesses have little to no understanding of what is actually driving the performance they are seeing. Without that clarity, it becomes almost impossible to make informed decisions about where to invest next. From a CRM/Customer loyalty perspective, this is where the real challenge emerges. The idea of a “loyal customer” is no longer as simple as it once was. Within any customer base, you now have multiple behavioural shifts occurring at once. There are customers whose spending hasn’t changed. Others are spending the same overall but shopping less frequently. Some are maintaining frequency but reducing their basket size, then there are those who have quietly lapsed altogether. Each of these groups requires a different response. Treating them the same, with a single campaign or blanket discount, is not just ineffective, it’s commercially risky. One-size-fits-all approaches in this environment tend to accelerate margin decline rather than protect it.

This is why measurement becomes so critical. It’s no longer enough to report on overall campaign performance or top-line revenue impact. Businesses need to understand, at a much more granular level, which offers are driving incremental behaviour and which are simply subsidising purchases that would have happened anyway. Direct attribution at an offer level is important, but on its own it’s not sufficient. Incrementality, often measured through control groups, is what reveals the true value. The uncomfortable truth is that revenue going up does not necessarily mean a campaign worked. In many cases, it simply reflects underlying demand that has been captured more cheaply than it should have been. Without proper measurement frameworks in place, businesses risk optimising towards the wrong outcomes.

This creates a broader issue at the executive level. The decision makers are often presented with high-level performance summaries that mask these nuances. Blended figures and generalised insights might look positive, but they don’t provide the clarity needed to navigate a more challenging economic environment. In a market like this, precision matters. Understanding where to invest, and equally where not to, becomes a key driver of sustainable performance. Ultimately, the brands that come out stronger will not be those that simply react with more discounts or more noise. They will be the ones that recognise the behavioural shift early, segment their customers effectively, and apply the right incentives in the right context. Most importantly, they will be the ones that build the capability to measure what truly drives incremental value.

Because in the current environment, poor measurement is not just inefficient. It actively contributes to declining profitability.