What A Coffee Shop Can Teach You About Finding Loyal Customers

It's not just about stamp cards or membership programs. Here's how coffee shops continue to thrive despite heavy competition and how your business can emulate them.

Coffee shops have some major advantages over other types of businesses when it comes to building a loyal following.

About 83% of adult Americans drink coffee, consuming an average of three cups each day. As a nation, we spend $12 billion a year at independent coffee shops, with 24,000 shops in the U.S. alone to satisfy this demand—a number expected to double in the coming years. Obviously, coffee is a popular beverage, not least of all due to its addictive properties.

On the other hand, since coffee is one of the most commoditized products on Earth, coffee shops face intense competition. While some people swear by one particular shop or chain, most are willing to jump ship for a better price, fancier selection, or even just Wi-Fi access.

People have plenty of options, and from this perspective, it can be tough to build and maintain a loyal following. Yet repeat visitors are the key to driving consistent and incremental revenue and are therefore indispensable to cultivating a healthy business.

Recognizing both the potential and the challenges at hand, coffee shops have embraced the imperative of building effective loyalty programs. If you frequent coffee shops, odds are you’ve collected a loyalty card, downloaded an app, or signed up for a program. Success stories abound.

The good news is there’s much that other businesses can learn from coffee shops about how to attract and retain customers. Here are three lessons from coffee shops all businesses can employ to build stronger loyalty:

Don’t Assume Loyalty

While many small business owners believe loyal customers are the key to growing their businesses, a recent Nielsen study found that 78% of consumers are not loyal to any particular brand, and 61% will happily switch brands to get a better price.

Illustrating this, a massive study conducted by CustomersDNA a few years ago found most coffee drinkers aren’t loyal to any one chain. Big chains have learned the hard way that a customer who walks in your door today is by no means guaranteed to walk in tomorrow. Consumers are fickle and need strong incentives to stay true to your brand. As Dave Jenkins of CustomersDNA reportedly told Dow Jones:

Getting that customer to come one more time to their restaurant and one less time to their competitor's is how the battle will be won or lost.

If you want to win, don’t assume loyalty—work for it.

Know Your Customers (and Use that Knowledge for Good)

The best way to earn loyalty is to show your customers that you get who they are and what they want. But how many companies can actually identify their most loyal customers?

As the Guardian pointed out, “coffee stores using [loyalty cards] are getting more data and thus more value from the customers using [them].” Those using high-tech solutions like apps get even more data. But the real key is using that data wisely.

Caribou Coffee does this well, tailoring rewards to individual customers. As their VP of marketing, Michele Vig, figured out, “Some want that free latte after so many purchases, and some don’t.” This personalization strategy is working: 65,000 people signed up for the card within a week of launch.

That said, 75% of consumers admit what they really want from a loyalty program is discounted or free products, an important nuance to keep in mind.

Mixing it up and offering a surprise (or, if you prefer the technical term, “variable interval reinforcement schedule”) here and there can also go a long way toward building loyalty.

So do your research, analyze the data, and tailor your efforts accordingly.

Treat Mobile Payments as a Loyalty Vehicle

Many businesses hesitate to embrace mobile payments, worrying they’re little more than a fad. One reason to seriously consider these programs, however, is that many offer built-in loyalty systems that can be very motivating. As Laura Radewald of Dunn Bros Coffee discovered:

While a mobile-payment program itself might not motivate a visit, a loyalty program seamlessly integrated into a mobile payments app will. Quick serves with a mobile payment and loyalty app have experienced more frequent visits from customers who use the app to pay.

In fact, many smartphone users are interested in interacting with loyalty programs through their mobile devices. To wit, Starbucks’s mobile payments and loyalty app earned them about $1 billion in 2013, with 10 million customers signed up and an average of 5 million transactions taking place via the app every week.

Mobile loyalty programs can be an effective strategy to drive repeat visits, especially from tech-savvy digital natives but increasingly from all demographics. And with the sheer ubiquity of smartphones—consumers are rarely without them these days—mobile loyalty can help you reach a key group of customers who may not yet be loyal enough to carry around a card but who may be open to a mobile loyalty program.

Coffee purveyors large and small are doing a great job building loyalty with their customers, in spite of being in a highly commoditized arena. All businesses can learn something from how they earn loyalty using data and technology to better understand their customers and provide incentives to keep them coming back for their fix, day after day.

Henry Helgeson is the CEO of Merchant Warehouse.

[Image: Flickr user Angie Chung]

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3 Comments

  • "While a mobile-payment program itself might not motivate a visit, a loyalty program seamlessly integrated into a mobile payments app will." --Amen. This is the main reason why I'm "loyal" to Starbucks. Their mobile app works so smoothly (i.e. I can pay for my purchases and track/redeem rewards without a hitch using my phone), it's hands down the simplest loyalty program I've come across.

    This is an awesome post, Henry. Love the studies/articles you linked to (I have some reading to do) and I'm certainly with you on your points regarding making good use of customer data and integrating loyalty programs with mobile.