The invisible competitor: navigating financial repression through personalised loyalty

Across the United States, a subtle shift in the economy is quietly unsettling the retail sector. And it comes from a surprising place. For decades, the US Dollar stood as the world’s pre-eminent store of value, yet that reputation now masks a gritty reality for millions of American households: their purchasing power is under sustained siege. As supermarket prices climb and housing remains stubbornly out of reach, even the quintessential middle-class lifestyle has become a series of difficult trade-offs. This is not part of a cyclical downturn; it is a structural transformation – not driven by hyperinflation but by financial repression and the steady debasement of the currency, meaning that consumers’ purchasing power is being eroded.

One important mark of financial repression is where the rate of inflation is higher than Central Bank interest rates. While the official Consumer Price Index (CPI) often suggests that inflation is cooling, these headline figures rarely reflect the "lived inflation" of most consumers. The discrepancy lies in the methodology of the Bureau of Labor Statistics, specifically the use of 'substitution' in the Chained CPI¹. By assuming that a consumer will simply swap expensive beef for cheaper chicken, the model masks a harsh truth: Americans are not paying less; they are being forced to accept a lower standard of living to maintain the same level of spend, while interest rates continue to fall and the cash they hold and salary they earn becomes worth less, in real terms. This 'invisible tax' has effectively turned inflation into an ‘invisible’ competitor, one that is actively stealing market share from retailers by eroding the consumer’s discretionary wallet.

The K-shaped economy

This economic pressure has crystallised into what is now recognised as a K-shaped economy. Data from the Federal Reserve’s Distributional Financial Accounts reveals a stark divide: the top 10% of US households now command approximately 67% of total household wealth². For these asset owners, rising equity and property valuations have acted as a financial buffer. Conversely, the "lower leg" of the K – comprising the vast majority of wage earners – is seeing real disposable income stagnate as the cost of essentials outstrips nominal pay rises.

For retailers, this bifurcation renders the old playbook of default brand loyalty obsolete. When the majority of the population is losing ground in purchasing power terms, consumption ceases to be a matter of habit and becomes an exercise in unwanted trade-offs. Every transaction is now a value-justification battle. As brand equity loses its protective power, retailers can no longer rely on the passive repeat-purchase; they must now win the customer’s preference anew in every single shopping mission.

From defensive discounting to loyalty engineering

As consumers become more discerning and digitally empowered, a new rational shopper has emerged – one who treats brand loyalty as a transient commodity. The surge in private-label growth to record highs across the US is a testament to this shift. In this environment, the traditional retail response – blanket discounting – is a self-defeating race to the bottom that erodes margins without securing long-term retention.

The antidote to this decay is behavioural AI, powering a personalised approach to loyalty across all channels and through automated engagement at the perfect point of need and perfect point in time³. Today’s most sophisticated systems have moved beyond blunt demographic segmentation to achieve 1:1, real-time personalisation. By interpreting individual intent, product relevancy and predicted price elasticity, retailers can move from defensive discounting to 'loyalty engineering'. Instead of offering the same deal to everyone, AI combined with highly customisable automation empowers the surgical application of incentives – providing the right product and the right reward at the precise moment of decision.

The financial imperative for this shift is undeniable. McKinsey & Company notes that leaders in personalisation generate 40% more revenue from these activities than their slower-moving peers⁴. Furthermore, research from dunnhumby indicates that fully integrated AI personalisation can lift overall retailer profitability by as much as 40%⁵.

The machine-led frontier: agentic commerce

The urgency to adopt behavioural AI is compounded by the arrival of ‘agentic commerce’. We are fast approaching a near future where AI assistants act as digital proxies, automatically scouring the market to execute purchases based on programmed preferences for price, quality, and convenience⁶. In this world, the retailer’s primary challenge will be to earn the preference of the algorithm as much as the human.

Retailers who delay their digital evolution risk becoming 'algorithmically invisible.' Behavioural AI serves as the essential defensive line, ensuring that a brand’s value proposition is sufficiently personalised and compelling to be selected by these digital agents. Those who capture and utilise behavioural data today are building the necessary 'intelligence capital' to survive an automated marketplace.

The inflexion is now

The US retail market has reached a point of no return. The combined forces of financial repression, currency debasement, and a K-shaped economy have rewired the American consumer. The era of the passive shopper is ending and will be replaced by a relentless seeker of value aided by increasingly sophisticated technology.

For retail leaders, the choice is binary: evolve through behavioural AI or face obsolescence. The path forward is a journey of incremental gains – starting with targeted tests in dynamic rewards or predictive recommendations and scaling into a self-funding engine of growth⁷. Those who embrace this transformation will define the next decade of American retail. Inflation may be the invisible tax on the consumer, but behavioural AI is the visible opportunity for the retailer to reclaim the future of loyalty.

Sources

• ¹https://www.bls.gov/cpi/additional-resources/chained-cpi-questions-and-answers.htm
• ²https://www.stlouisfed.org/open-vault/2025/june/the-state-of-us-household-wealth
• ³https://www.dunnhumby.com/resources/blog/loyalty-personalisation/en/ai-powered-personalised-loyalty-the-next-frontier-in-the-pursuit-of-customer-relevance/
• ⁴https://www.mckinsey.com/capabilities/growth-marketing-and-sales/our-insights/the-value-of-getting-personalization-right-or-wrong-is-multiplying
• ⁵https://www.dunnhumby.com/resources/reports/loyalty-personalisation/en/join-the-forty-percent-growth-club-with-ai-powered-personalised-loyalty/
• ⁶https://www.dunnhumby.com/resources/blog/loyalty-personalisation/en/agentic-commerce-how-to-win-and-retain-customer-loyalty/
• ⁷https://www.dunnhumby.com/resources/blog/loyalty-personalisation/en/top-10-ai-personalisation-use-cases/