Tuesday, September 21, 2010

How my local coffee shop got loyalty all wrong

My local coffee shop near work has recently got competition, a short walk away. No surprises then, I suppose, that to provide a little disincentive for us to try out, or indeed switch to the opposition, a coffee card appeared. Every ninth coffee free.

The general vibe from customers appeared to be slightly on the cynical side - the shop didn't seem to particularly care about us before they had opposition. But a discount is not to be sniffed at, and pretty quickly we were filling up our cards with stamps.

But then, some strange behaviour. Unannounced, ordering a "medium" rather than "small" earned two stamps, not one. But the next day, "medium" reverted to one stamp. Then, a few days later, again unannounced, I received three stamps for a "small" - an unexpected bonus - customer surprise and delight, even.

But then the bonuses totally disappeared. A sense of frustration not knowing what behaviour I had to exhibit to be treated any more favourably.

Then, today, shock above all shocks, only a matter of weeks on, they are not handing out any more coffee cards! End of program looms! "Head office directive", mumbled the barista. I'm wondering now whether they'll "lose" the stamp, leaving me with unredeemed cards!

The prevailing theory among we, the hapless clientele, is that the coffee shop feels it has weathered the onset of the new competition just down the road. Therefore, they need not "pay" for our loyalty any longer.

Phew! My reflection is that this little whirlwind over the last two months has provided a salutary microcosm concerning things loyalty.

The "launch" phase, while unremarkable, was flawed. The sell-up of the offer seemed to lack a raison d'etre, or sufficient promotion at the least, that it came across as a disingenuous ploy only because decent opposition loomed. Certainly not part of an integrated customer-focused strategy.

Secondly, the rather bizarre, inconsistent crediting of bonus stamps left a sense of confusion rather than goodwill. A loyalty currency, even in the base and unsophisticated form of coffee stamps, can provide a strong mechanism for behaviour change. Yet it was never clear what behaviour they were seeking in order to gain the extra benefit. And having had a brief taste of the complimentary stamps, they disappeared. Such is the challenge for a loyalty marketer that the introduction of bonus points - or any additional benefit - creates an ongoing obligation to keep up that supply. And for it to be crystal clear what a customer has to do to earn a premium.

And finally, this tawdry vignette adds another chapter to the book entitled "it's harder to end a loyalty program than start one". In the case of our coffee shop, the end game could hardly have been executed in a less customer-friendly manner. The fact that it is being shut down so soon after beginning has reinforced a notion that we poor customers have been mere pawns in a brazen and coarse exercise.

Of course, in the larger loyalty landscape there have been any number of much higher profile (and very costly) failures. Any loyalty strategy needs to be finely planned and carefully executed. The ultimate cost for my coffee shop has been customer disaffection and distrust. Any modicum of goodwill that was tentatively established when the cards and stamps appeared has been more than wiped away by the brusque nature of its abandonment. Ironically, from this sad exercise the coffee shop has indeed created a unique "point of difference" from its competitors - just not the one it was looking for!

Friday, September 17, 2010

Counting the beans

Nescafe's Cup of Rewards is a new player in the Aussie loyalty space, and represents a brave play in a loyalty market which has been almost devoid of product-specific programs.

Loyalty watchers are quite familiar with some of the big global players in this space, with My Coke Rewards weighing in as possibly the biggest, with 14 million members in the US. Programs in the FMCG sector (read CPG in the US) have been quietly garnering a corner of the loyalty territory traditionally claimed by retailers. Not that this has been a smooth pathway, as LoyaltyOne's Sol Zia recently neatly summarised.

However, it's not surprising that Australia has to date provided a barren landscape for FMCG programs. Although older Australians may recall exchanging Robur or Lan Choo tea labels for teapots in years past, the simple lack of scale has hindered the economics of such initiatives here.

So will the Nestle program work? The program is simple to join, and the website has a contemporary, friendly feel. A head start of 50 "beans" (plus a further 25 if I refer a friend) means that rewards are instantly within my reach. There's been a deliberate attempt to have the lowest possible bar on rewards, but I think it comes at a cost. Low-level rewards such as $30 off a $130+ Red Balloon experience, or a free game of bowling for every paid one, can come for nothing with existing member benefit programs. The balance of the reward catalogue seems a little sparse at present and surprisingly there appears to be no current link to social media but I expect these aspects will come in time.

The giveback is by necessity generous, given the narrowness of the category. With a 150 gram jar costing $8.50 earning me 150 beans, a $20 Repco voucher or iTunes benefit for 1,900 beans implies a very healthy giveback of just under 20%. Beans remain "fresh" for 24 months.

It's early days for Cup of Rewards. With the increasing appetite of Australian shoppers for private label products, programs like this have potential to provide additional brand stickiness. More than a few bean counters will be watching!