What drives consumer spending?

From ‘Buy Now, Pay Later’ to loyalty schemes. What drives consumer spending?

04 July 2024

Drawing on insights from our latest survey of 2,000 consumers, we explore the unique value propositions that influence spending habits in the retail and hospitality industries. From loyalty schemes to buy now, pay later (BNPL) options, what are consumers looking for that will ultimately inspire spending?

Retail loyalty schemes becoming a staple business strategy

Loyalty schemes in retail are rapidly becoming a staple of business strategies, as brands seek out meaningful ways to engage with and provide tailored experiences and offers to consumers.

Consumers have come to expect these schemes, with 51% indicating they are more likely to choose a retailer with a loyalty program over one without. Interestingly, the likelihood of choosing a retailer with a loyalty program rises with income, for example 60% of consumers with household earnings of £80k and above prefer to shop with retailers with such programmes, compared to 45% of consumers with a household income of £20k and under. 

Pie chart: Which of the following rewards offered as part of a retail loyalty scheme are you most interested in?

The most sought-after benefit for consumers subscribing to a loyalty scheme is price reduction, with 48% prioritising this. Bonus points to be used with the same retailer are the second most appealing, at 18%, followed by bonus points usable across multiple retailers at 12%. Across the age groups, Baby Boomers are the most likely to seek price reductions (53%), while Gen Z is the least likely (36%). These findings align with our previous research, and indicate that Gen Z prioritises quality of goods over value for money.

Despite retailers' efforts to attract consumers with personalised recommendations and event access, these perks have minimal appeal. Only 3% of consumers are most interested in personalised recommendations, and just 2% in special events. These numbers see a slight increase among Gen Z, with 5% most interested in personalised recommendations and 4% in special events, reflecting the generation’s appreciation of personalisation and unique shopping experiences.

Beyond the prominent supermarket loyalty schemes, like Tesco Clubcard and Nectar, we're witnessing a growing trend of retailers integrating membership schemes into their business models, offering exclusive pricing to registered consumers. Organisations have even structured their entire business around this model, for instance Beautypie, which incentivises customers to become members and enjoy significantly discounted prices across all products.

Despite general improvement in the economic climate, the psychological hangover from the cost-of-living crisis, and its rapid price increases, will leave consumers seeking value for some time yet. And with consumers showing clear preference for brands with loyalty schemes, those that don’t adopt this model could risk losing considerable market share.

Loyalty schemes in the hospitality industry

Loyalty schemes are fast becoming a staple of the hospitality industry, too, offering a mutually beneficial relationship between businesses and customers. A successful loyalty scheme can not only increase customer spend, but also enhance overall experience, encouraging consumers to choose one operator, repeatedly, and over its competitors.

Our research indicates that, although a significant portion of consumers may appear indifferent to loyalty schemes in the hospitality industry, 42% are more inclined to patronise a restaurant with such a programme, and 40% are more likely to visit a quick service restaurant offering one. This underscores the significance of these initiatives and the influence they hold over a large portion of the market.

Venues focused on drinking out, such as bars and pubs, see a lower rate of consumers who would be more inclined to visit if they offered a loyalty scheme. Only younger consumers, particularly Gen Z, show a higher-than-average incentive to frequent venues with loyalty programs, with 36% more likely to visit a bar with a loyalty scheme and 33% more likely to visit a pub. However 18% of Gen Z respondents said they would be less likely to frequent a pub that offered a loyalty scheme, indicating that pubs should be careful with their approach, as these schemes can sometimes be a turn-off. As discussed earlier, Gen Z are more inclined than other consumers to look for quality over value for money, which feeds into these diverging findings.

Bar chart: If a food and beverage outlet has a loyalty program, which of the following best describes how likely you will buy from that outlet?Our research indicates that consumers with higher household incomes are more likely to frequent hospitality venues offering loyalty schemes. For instance, 59% of consumers with a household income of £80K and above are inclined to choose a restaurant with a loyalty scheme, compared to only 35% of those earning under £20k. A similar trend is observed with quick service restaurants. While this highlights the need for hospitality brands to carefully consider their loyalty offerings and target customer demographics – it’s imperative to avoid a race to the bottom on pricing, that could negatively impact profit margins.

While loyalty schemes may not be the deciding factor for every customer, they clearly hold considerable influence for a portion of the market. Operators should consider these insights as an opportunity to cultivate customer loyalty and increase their market share.

Buy now pay later doesn’t just appeal to young consumers

Buy now pay later (BNPL) has become an expected value-add for many consumers, with the Covid-19 pandemic accelerating adoption as consumers increasingly turned to online shopping. Additionally, the subsequent cost-of-living crisis, has only heightened its appeal, making short-term interest-free, flexible payment options even more attractive.

With easy access and seamless integration with online shopping, BNPL services attract younger demographics, offering a convenient, inclusive, and psychologically appealing alternative to traditional credit products. This is reflected in our survey results, with 26% of Millennials and 20% of Gen Z consumers saying they have used BNPL credit in the last 12 months, making them the most likely age groups to do so. Additionally, younger consumers are more likely to hold BNPL accounts, with 54% of Millennials and 53% of Gen Z having an account, compared to the overall average of 35%. Future intentions to use BNPL are also strongest among this age group, with 75% of Gen Z and 70% of Millennials indicating they will use BNPL credit to spread the cost of purchases.

Bar chart showing which generation of consumers are most likely to use ‘buy now pay later’ or store credit to spread the cost of purchases.

However, younger shoppers aren't the only consumers who utilise BNPL. Our survey found that households earning £60k and over are the most likely income bracket to employ BNPL, with 65% of these consumers indicating they would use it to spread the cost of purchases.

Families are also keen users of BNPL, being the most likely consumer group to have used it in the last 12 months (28%). Among Millennial consumers with children, this number rises to a third (33%). This trend is consistent across other measures, with 69% of families stating they will use BNPL to spread the cost of purchases, increasing to 77% for Millennial parents. Additionally, 52% of families have a BNPL account, with this figure rising to 61% for Millennial families.

Bar chart showing which generation of consumers has a ‘buy now pay later’ or store credit account

Finally, it’s worth discussing BNPL usage among consumers with lower incomes. It’s often assumed that these consumers are avid users of BNPL credit, especially during the cost-of-living crisis to support everyday spending. However, while BNPL usage has surged overall since 2020, our survey shows that households with an income of £40k and under are less likely to use this type of credit compared to the average consumer, with only 17% having done so in the last 12 months. Additionally, 69% of these consumers report not having a BNPL account, and 52% say they would not use this type of credit.

However, when we segment the data to focus on households earning £40k and under with children, the picture changes significantly. These consumers are much more likely to have used BNPL in the last 12 months, with 30% reporting usage. Furthermore, 55% of these consumers have a BNPL account, and 68% say they would use BNPL to spread the cost of purchases.

These results reinforce the idea that the cost-of-living crisis has hit families hardest. With more mouths to feed and childcare costs to consider, these groups are among the most likely to utilise BNPL to support spending.

Categories where consumers are most likely to utilise buy now, pay later

As we’ve established, Millennials, Gen Z, families, and consumers with a household income of £60k and above are the most likely groups to use BNPL or store credit. However, category preferences among these groups for using BNPL differ.

Technology is the leading category, with 24% of consumers indicating they would use it to spread the cost of tech purchases. This trend is further pronounced among the above key consumer groups, particularly Millennials, with nearly a third (32%) saying they would use BNPL for technology purchases. Millennials are also the most likely to use BNPL for clothing and accessory purchases (22%) and health and beauty products (19%).

Bar chart: For which of the following types of purchases, if any, would you use ‘buy now pay later’ or store credit to help spread the cost?Homeware is another key area where some consumers are motivated to use BNPL. Families (20%) and Millennials (19%) are the most likely groups to use BNPL for these goods. Additionally, BNPL and store credit are increasingly becoming available for home renovations, with a few suppliers – such as bathroom suppliers – offering consumers the opportunity to pay for labour and renovation projects using BNPL as a value-added service. Consumers with a household income of £60k or more are the most likely to utilise BNPL or store credit for these types of projects (22%).

We expect the use of BNPL for services, not just goods, to become an emerging trend in the next 12 months, particularly in the home renovation space. With the housing market set to improve as interest rates fall, suppliers of products for kitchens, bathrooms, and similar projects should see a welcome boost in trade. These businesses would be well-advised to consider incorporating BNPL options into their strategies to gain a competitive edge and increase share of spend as market conditions improve.

Neglecting value-adds could prove costly

Overall, our survey reveals that loyalty schemes and buy now, pay later options significantly influence consumer spending. By integrating these features, retailers and hospitality businesses can boost customer loyalty and spending. Economic conditions in the last few years, mean that consumers are looking for more value from brands than ever, and adapting to these consumer preferences will be crucial for retaining and expanding market share. Consumer businesses that ignore these trends risk losing customers seeking value and flexibility.

To discuss our research, or any other business issue you may be facing, contact our experts.

Saxon Mosely
Saxon Moseley
Partner, Head of leisure and hospitality
Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst
Saxon Mosely
Saxon Moseley
Partner, Head of leisure and hospitality
Robyn Duffy
Robyn Duffy
Consumer Markets, Senior Analyst

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