The evolution of consumer behavior in an uncertain market

What motivates someone to make a purchase used to be as simple as how much you want or need it, and how much it cost. Those days are long gone, and now the science behind consumer behavior and customer retention strategies is a full-blown industry. There are a few constants but changing market conditions and how we live in the world around us means consumer behavior will always be a moving target.

The recent COVID pandemic upended not just what we thought we knew about consumer behavior, but also how much consumers and brands could pivot to adapt to shattered supply chains, health regulations and items that suddenly became “must-haves”. (Who knew we would be hoarding toilet paper, hospital-grade face masks and hand sanitizer?)

How 2025 tariffs are reshaping customer loyalty strategies

In 2025, tariffs, threatened tariffs, and retaliatory tariffs are once again forcing brands to think hard about how they engage with consumers, while continuing to deliver the products and value shoppers’ demand.

Tariffs are taxes that eventually roll down to consumers to pay once brands run out of options to mitigate costs. That means brands need additional tools in their customer retention toolbox to retain customers and grow market share. One effective tool is a well-designed loyalty program. Not only can it boost customer engagement, but brands with loyalty programs are also gaining important information that can help them deliver more value to their customers.

The data behind customer retention: why 79% of consumers join loyalty programs

A recent PYMNTS study found 79% of consumers surveyed said they participate in at least one retail membership, subscription or brand loyalty program. For brands, retaining customers and growing sales revenue are primary drivers for developing a loyalty program, however, there are also advantages to programs that reward participants simply for staying active.  In a competitive product environment customers have choices, meaning every brand has to work to keep and grow their market share.

Loyalty programs: costs to consider

A good loyalty program comes with costs. These include designing a program that helps you achieve your goals, enhances the customer experience, and follows compliance regulations. There are costs associated with the benefits and rewards brands give customers who participate in the program, and of course the costs involved in letting customers know about the program. Finally, brands will need to work with a partner or find the resources in house to build a platform the brand or their partners can manage, evolve, and keep the program running.

Designing the program begins by understanding your goals. Are you trying to keep customers from migrating to lower cost options? There was a time when customers were fairly brand loyal once they settled on a product they liked, but the pandemic changed that behavior. A McKinsey study that looked at consumer patterns following the worst of the pandemic found nearly 40 percent of consumers faced with a shortage of the item they wanted to buy were willing to switch products or brands to get what they needed. More than 30 percent switched retailers. A good loyalty program can entice a shopper to sideline their newfound wanderlust and stick with your brand.

Building a tariff-resistant brand through strategic loyalty design

Perhaps you are a B2B brand, and you face competition not just from other brands sitting on the shelf next to your product – but from their salespeople who are actively trying to woo your customer. This is where a well-designed loyalty program can incentivize your customers to stick with you. Discounts, prizes, and rewards are just as compelling for a B2B customer as they are for a B2C shopper.

Creating memorable brand experiences that keep customers coming back

It might be tempting to simply ride on the coattails of someone else’s loyalty program. This is especially true for CPG brands. Major retailers have their own loyalty programs that can highlight various products, thus offering brands the benefit of retaining customers at a much lower cost.

However, a retailer’s loyalty program is designed to keep customers loyal to the retailer, not a particular brand. And any brand relying solely on a retailer’s program is losing out on one of the most valuable benefits of a loyalty program, the opportunity to learn more about your customer. Brands can consider flipping the script by designing a loyalty program in partnership with a retailer, giving brands control over the customer experience – and feedback. Arrowhead has worked with clients to design and manage loyalty programs with retailers that resulted in significant engagement. While the program benefited the partner retailer, our clients gained valuable insights that will help them strengthen customer loyalty moving forward.

Your customers want to be heard and loyalty programs can be a great way to engage deeper with these participants. A brand can establish actual dialogue to share new product ideas, get audience feedback and more, including customers early access to a highly anticipated release, inviting members to special events, a way to share product samples, and conduct market research with people who are already your customers. These go beyond price to offer consumers value they won’t find elsewhere.

The name of the game: long-term retention and growth

Plain and simple, loyalty marketing programs are about keeping people loyal to the brand.  They can come in many flavors depending on your goals. Chief among them is offering value beyond just price. As competitive products improve in quality, it becomes increasingly harder to keep your customers – especially if your competitor’s price is lower. Loyalty programs are a great way to ensure you are using every tool at your disposal to engage your customers, offer them value, and understand how you can keep your customers moving forward.

Pulling the right levers: optimizing your promotions mix

As we head into Q2, companies are in the unenviable position of having to plan around recently announced tariffs by the Trump Administration and threatened retaliation from targeted countries. On April 2, President Trump announced a 10-percent across the board tariff for all trading partners, with additional tariffs on countries where the U.S. sees a trade imbalance. Those tariffs range from 34% on Chinese imports, 32% on Taiwan, 25% on South Korea, 24% on Japan, and a 20% tax on goods coming from the European Union.

The Trump administration previously implemented or threatened tariffs on numerous products worldwide, including steel and aluminum. Some countries, notably Canada and China, have implemented countermeasures, and the EU is teeing up its own retaliatory tariffs targeting U.S. goods.

With this latest announcement from the U.S. and nations worldwide drawing up their plans, the amount of additional taxes companies might pay on products or raw materials to make products will be unpredictable. Not only does this impact the price of goods, it can also impact the supply chain, creating even higher prices as well as potential shortages. This makes mitigating tariffs a critical focus for businesses looking to stay competitive and protect their margins.

In January we laid out the advice Arrowhead is giving to our clients as they try to navigate potentially choppy waters ahead. Much of that advice remains the same and is becoming more urgent as consumer confidence is beginning to nosedive. The Conference Board’s Consumer Confidence Index® fell 7.2 points in March, after declining 7.0 points in February. It marks the fourth decline in as many months.

Likewise, the University of Michigan consumer sentiment survey for the U.S. fell to 57.9 in March, down from 64.7 in February, marking a third month of decline, and the lowest level since November 2022. The University of Michigan indicated consumers were concerned about personal finance, business conditions and labor markets, among other things.

Building a promotions strategy in 2025 for mitigating tariffs

As the prices of consumer goods rise in response to tariffs, consumers will inevitably start to make careful choices about where and how they spend their money. This is where a smart and nimble promotions strategy becomes essential. By adapting quickly through promotions, businesses can retain their current customers while also attracting new ones, remaining competitive while alleviating some of the pain for their customers.

CPGs essentially have two levers to pull when trying to retain customers looking for value. You can work to create loyalty within your customer base, and you can offer discounts to make your product more competitive. This is not an either/or proposition for companies – it’s often a matter of knowing which lever to pull and when, without relying too heavily on one or the other.

Coupons provide an immediate remedy on price, and often customers perceive them the same way they do any other discount. It gives them a straight comparison for a similar product with no discount, and for products impacted by tariffs, coupons can provide a temporary reprieve on any price hikes that come when these additional taxes are passed on to the consumer.

Consumers tend to view rebates as more of a loyalty play – requiring an additional step of submitting documentation to receive the rebate. It’s a win for the shopper who follows through to get the rebate, and a win for the seller who retains or even wins a new customer. Because not every shopper follows through with required documentation, rebates can be a lower-stakes method for companies to attract consumers.

Working with a partner who can help you be nimble with your promotions strategy is the smartest move going forward in 2025. Plan for the year, but understand the need to be flexible as policies, and opportunities change. Arrowhead offers our clients a number of flexible strategies, including a quick to market platform that allow our clients the ability to spin up promotions efficiently and inexpensively in order to take advantage of rapidly changing market conditions.

Counter tariffs by strengthening customer engagement

The economy will ultimately decide whether tariffs make good policy or not. Some sectors are cheering an opportunity to negotiate a trade policy more favorable to their businesses. Brands that rely on numerous supply chains to get their finished products into the hands of consumers will follow a more complicated road. Businesses will have to account for how changing tariff policies impact their supply chain as that could lead to delays or even shortages in both the near and long term.

What is clear is locking into the tried-and-true promotions strategy that worked for you in 2024 might be less effective moving forward in 2025. We recommend continuing programs that build customer loyalty, while simultaneously targeting discounts that can quickly take advantage of an opportunity or mitigate a new challenge. Whether you have in-house expertise or a partner that can help you with quick to market promotions, customer engagement is more important than ever, as brands worldwide strap in for the complexities that lie ahead.

The uncertainty of tariffs under the incoming administration

As brands worldwide assess the policies of the incoming Trump administration, one that stands out is the promise of tariffs. Should they happen, they will have a cascading impact on consumers and how brands engage with their customers. Until there is more clarity on how tariffs might be implemented, brands are facing 2025 with a high degree of uncertainty. This is the time to dig into your marketing playbook and evaluate your strategies for mitigating tariffs to ensure you continue to engage your customers and build brand loyalty.

What could be impacted by tariffs?

Good question. President-elect Trump has singled out China, Mexico, and Canada in recent weeks, which could raise prices on raw materials for manufactured goods, as well as consumer goods like cars, groceries, gas, clothing, consumer electronics and appliances, and adult beverages. The number one beer in the U.S. right now happens to be a Mexican import.

Responding to a policy that is still on the drawing board is a sizeable gamble for brands. Our economy depends on supply chains around the world, as well as lower cost labor overseas, and moving all that infrastructure onshore to avoid tariffs altogether would be a herculean and likely unsustainable undertaking for most.

It’s possible the new administration will have more targeted tariffs, as we saw under the first Trump administration, and continued through the Biden administration. Until there is more guidance from the Trump administration, many manufacturers and retailers are taking a defensive position as they plan for 2025 and beyond.

The potential impact on consumer goods

Generally, tariffs are used to try to level an unequal playing field for industries that struggle when a foreign government floods markets with cheaper goods. The hope is consumers will simply “buy American”. In fact, there might be opportunity for some industries to profit if targeted, one-time tariffs prompt consumers to switch brands. For example, American whiskey brands could benefit if consumers shy away from Canadian brands made more expensive by tariffs.

The Tax Foundation, a non-partisan tax policy group that produces research and analysis on tax policies estimates the tariffs imposed by the first Trump administration and continued under President Biden, cost U.S. households an additional $200-$300 in tax collections annually, on average. If consumers start feeling the pain from rising prices due to tariffs, particularly in categories they interact with regularly, like fuel and groceries, they might pull back on more discretionary purchases.

Tariffs could also have a more widespread impact than the imported goods they target. In one scenario, as prices could rise in one category of foreign products, similar brands in the U.S. that don’t fall under tariffs could raise prices as well, if they believe the market will bear it. That could eventually prompt consumers to switch to cheaper alternatives, as they did when inflation was rising during the pandemic. In another scenario, countries hit by tariffs could retaliate, initiating a trade war, slowing down the economy, and possibly slowing job growth, which impacts the ability of consumers to spend.

Strategies for brands to mitigate the impact of tariffs

Large and small brands aren’t sleeping on the promise of tariffs, even if it’s unclear how they would roll out. Some are expediting orders from overseas suppliers, hoping to build in a way to cushion later price increases. Large brands, like shoemaker Steve Madden, are moving production out of China.

For many brands, this is the time to control what you can control, and that is your relationship with your customers. As brands had to do when inflation was driving consumers to lower-priced alternatives, or to not buy at all, this is the time to do an inventory of your marketing tactics with an eye on strategies for mitigating tariffs that might directly impact your ability to deliver the quality and value your customers expect.

Loyalty programs offer a time-tested strategy to excite customers about your brand and incentivize them to choose your brand over a competitor. What in the new year can improve your loyalty program, or make it stand out if shoppers aren’t fully aware of it? Loyalty programs aren’t just for shoppers. Many brands find success with programs that incentivize retailers and their team members to help showcase your brand to shoppers. At Arrowhead, we have helped numerous clients develop loyalty programs that help increase in-store sales not just by offering incentives to highlight a brand, but also through knowledge-based programs that train salespeople how to best position your brand and reward them for doing so.

Quick-to-market strategies to respond to tariff impacts

While the incoming president has promised action on tariffs on “day one”, we might also see tariffs roll out over several months or years if they are used as a negotiating tool. That increases the need to be able to respond quickly to market conditions. A quick-to-market (QTM) strategy can help brands spin up a campaign to incentivize shoppers without a lot of lead time and expense. The key is having a platform that gives you a template to streamline decisions, and preferably one that is agnostic to the scale of the campaign – big or small, it works because it is a templated format. Some brands might choose to build such a platform in-house, while others rely on an outside partner that has a ready-to-go solution. Arrowhead’s QTM was designed to help brands move quickly and at scale – with our compliance features built-in, so our clients are always protected, not matter which solution they choose.

Using coupons and rebates to attract customers amid price hikes

If tariff’s drive-up prices, consumers will be looking for deals on their favorite products or cheaper alternatives. This could be an opportunity to attract new shoppers who would find more value in your product or offer a way to lessen the blow on any price increases for a product they already love. Coupons and rebates are proven strategies that may nudge shoppers toward your product when comparing products directly.

Controlling your brand strategy in uncertain times

Brands may try to influence economic policy, whether it’s through legislative channels, or public opinion. In the end, the only thing brands can truly mange is how they react to policies and conditions that impact the economy. Brands control the relationship they have with their customers. Evaluating that relationship now, working with your marketing team or your promotional partner can help you find ways to engage, delight and show value to your customers to help weather changes that come as a new administration plots its course for the U.S. economy.