Loyalty Programs: A Seattle Coffee Shop

December 2, 2008

Coffee with Fresh Whip & Scharffenberger Cocoa Powder

Coffee with Fresh Whip & Scharffen Berger Cocoa Powder

This morning I found a pre-paid latte card in my purse, a Buy 10 (upfront, same drink) Get 1 Free card to a local coffee shop here in Seattle. I went in and picked up my 10th latte, which I had paid for in the far distant past.

Why the Coffee Shop Wins:

This coffee shop received $40 up front for a 3.5″x2″ piece of card stock that says the bearer of said card will receive one latte when s/he presents the card. Multiply the $40 or so dollars by the number of regular patrons and this coffee shop has collected significant revenues without delivering product yet. This cash flow can be used to make improvements, alleviate the need to dip into credit lines, and represent additional liquidity. Not all of the lattes purchased in advance will be collected. It’s the same principle as the one behind the profit margins behind gift cards.

Not only that, customers who’ve purchased one of these cards are saying that there’s a reasonable belief that they think they’ll get to the 11 (read: free) latte, so are (or intend to be) repeat customers.

But oh no, there’s more:

This same coffee shop also has a second frequent coffee drinker rewards program. You can Buy 10 (of any drink) Get 1 (of any drink) Free card on a pay-as-you go basis.

Why the Customer Wins:

The above loyalty program is more beneficial to the customer – it doesn’t require an initial upfront investment from the customer. The coffee shop must book revenue as purchases occur and does not have to reward customers with the loyalty latte until it’s earned, same as the above program.

So what’s the problem?

Where’s the incentive for the customers to choose the first program? If you only allow them to participate in one or the other, don’t be surprised If they choose the latter. Of the ones who’ve chosen the first program, when informed that precludes them from participating in the second program, do you think they’ll appreciate being told that they’ve opted into a suboptimal program?

In the first program, the coffee shop already has the money – what’s the incentive to continue to delight them? Could the first program, offered in conjunction with the second program, build brand detractors, instead of brand advocates?

In the second program, the coffee shop has to provide an experience worth repeating EVERY TIME. If it does, it will have loyal, satisfied customers.

The solution to having both problems would be allowing those who are providing the initial investment or buy-in to also participate in the second program – essentially, buy 10 lattes, get 2 free. Doing so builds a loyal base of brandvocates, who feel like they’re receiving value for their upfront investment.


2 Responses to “Loyalty Programs: A Seattle Coffee Shop”

  1. The benefit of the prepaid card to the customer is that they can buy it on their credit card, and it makes each coffee “purchase” faster.

  2. […] 10, 2008 Gregory Heller commented on my earlier post about loyalty programs: The benefit of the prepaid card to the customer is that they can buy it on their credit card, and […]

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