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 it makes each coffee ‘purchase’ faster.

Making each purchase faster would be fantastic. However, the time savings may be canceled by the time waiting for the drink. The process goes:

Order in at counter;

Payment exchange at register;

Coffee out at adjacent counter.

In between Order In and Coffee Out, the customer’s order goes to the barista who makes said order. Payment exchange can happen concurrently with the coffee making process. Depending on order volume and type, either the payment step or the drink crafting step is the bottleneck.

Groundwork, Hollywood Location from An Bui

Groundwork, Hollywood Location from An Bui

Consultation with the baristas at the ever-helpful Groundwork in LA confirmed that the time associated with making a customer’s drink, on average, exceeds the time associated with processing payment.

For more on coffee cup management, check out Corey Ladas’ blog, Lean Software Engineering or his upcoming book, Scrumban.

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.

Twitter Makes Me Hungry

November 27, 2008

Twitter is a communication platform.  It is a hub where people discuss where they eat, get recommendations, learn, interact, and plan gatherings.

People are social.  They eat, they meet with each other, they talk about their experiences.  If you are a restaurant, you want to be part of this conversation.

When looking in Twitter, restaurant owners often search for conversations relating directly to their restaurant.  “Am I being talked about?”  So they will search for “Bick’s Restaurant” and be happy with the results or lack thereof.

But do you understand the conversations that are actually happening that make your restaurant relevant?

For example, questions like “Where should I eat?”  The results are numerous.  Are you the response they are getting back?

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What are they saying about restaurants in general? When people are dissatisfied, is it because of the food, the service, the experience?  If we search “restaurant sucked” or “excellent food” what do we see?

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And when these people on Twitter have a gathering, are they coming to your restaurant? What gatherings are forming?  Who is forming them?  Here there are 4 pages of tweets talking about this particular dinner.

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There are a massive number of sites on the web where people might be talking about your restaurant.  Key sites like Twitter are communication hubs that often point at other information.  Here we see blog posts that mention restaurants that are broadcast over Twitter.

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You can search Twitter by using The Twitter Search Utility  or you can use tools like Twitscoop which give you graphs showing how often you are discussed.

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In the end, it’s not necessarily the tool you use to make the search.  The power of a pool of information like Twitter is how you search.  What is that key piece of information that Twitter is hiding that can bring in more customers?

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Pay what you want?

November 20, 2008

A recent Seattle Times article talked about the success of a “Pay what you want” promotion at a local restaurant.

The idea is to allow the guest to decide what they want to pay for the food.


I like the idea – – a lot! The owners generated buzz (and business) during an otherwise slow time of the year.

Obviously, the PR and goodwill created by something like this is priceless, but I also find the results intriguing. Considered a branding exercise, the numbers might be viewed differently.


In the particular example mentioned in the article, 80% of the guests paid less than the menu price, a few paid the same, and a few paid more. What does this say about the “value” that diners find in this restaurant’s menu? To me, it says that only 20% of diners feel that they are receiving a good value for their money.


There is no magic formula for pricing. Owners and chefs that use a food cost percentage to determine pricing usually over or under charge. Competitors provide a benchmark, but there is no proof that their information is any better than yours. Ultimately, the market decides what your products are worth. Restaurant owners do not often have a method to ask their customer “What do you think my food is worth?” Perhaps a promotion such as this allows answers that many would not want to hear.

The upside of a downturn . . .

Despite the gloom and doom of the financial news, this could actually be a good time for wise restaurant operators. Just consider:


People have to eat


Designer kitchens and Williams-Sonoma catalogs notwithstanding, many of your customers don’t do that much cooking. Hectic schedules and over-programmed children leave little time for preparing and serving a meal. Make sure that you are convenient and easy to use. You will be rewarded.


People want to drink


Alcohol sales have traditionally surged during tough economic times. Open your 401k statement, drown your sorrows. ‘Nuf said.


Misery loves company


A gathering place that provides warmth, food and beverage, and congeniality has a special appeal during tough times (“Cheers” premiered during the recession of 1980 – 1983)


Good people are looking for work


A career as a cook, bartender or waiter looks awfully appealing to many mortgage brokers, bankers, or stockbrokers. Use this as a time to upgrade your staff.


Costs might be actually dropping


Oil prices are down. Delivery surcharges should follow. Many of the increases that we have seen in the world commodities markets may be leveling out – – or actually dropping. Pay attention and purchase wisely.


Loyalty takes on a special meaning


Customers don’t want to risk their dining dollars. They will return to the restaurants that have taken good care of them in the past. Find a way to stand out while your competitors are cutting back. Try a new promotion. Mix up your menu offerings. Embrace regulars.