The votes are in, the numbers are tallied and it's official, we in Britain have turned on our tea drinking tradition and become a nation of coffee drinkers.

Today we consume around 1.7bn cups of coffee a year, with the majority of us drinking two cups a day and spending about £25 a week on coffee alone.

It’s a booming business for the thousands of coffee stores out there. However there are only three that dominate our high streets and all of them acutely aware of the low barriers to entry and switching costs of consumers, so they do all they can to keep their customers coming back for more.

Starbucks, Costa and Caffè Nero all operate some kind of loyalty program to entice you to stay with them but how do consumers really know they are getting the best deal? And furthermore, is there really a relationship between these programs and customer loyalty? Let's take a closer look…

Which coffee chain offers the best 'value for money' loyalty program?

Here is a quick sum up of the top 3 coffee chain programs out there:

Starbucks

Starbucks operates a two tier loyalty program:
Green tier: Get one free beverage when you use your Starbucks card to pay 15 times (earning 15 stars)
Gold tier: If you earn over 50 stars a year you get Green benefits plus extras e.g. free caffiene shots

Costa

For every £1 spent in store you get 5 points, each point worth a penny to spend in store anyway you like

Caffè Nero

Get your tenth coffee free when you buy 9 coffees and collect the stamps on their paper-based loyalty card

But which one represents the best value for money? For ease of comparison lets say your regular drink is a medium-sized cappuccino in each of the stores, here is how it breaks down: 

Price per coffee

Promotion

Overall cost to get a free equivalent coffee

Average % discount per coffee

Starbucks

£2.60

15 Stars to earn a free coffee

£39*

7%

Costa

£2.45

£1 = 5 points
1 point = £0.01p

£50

5%

Caffè Nero

£2.35

Buy 9 get 1 free

£21.15

11%

* Assuming you only purchase one coffee at a time

So there you have it, Caffè Nero’s simple stamp based system delivers their customers the best value for money by far. Furthermore, it would appear that its program (if you can call it that) is by far the most straightforward which makes it even more appealing.

From your own perspective, would this make you walk those extra few steps into a Caffè Nero (as lets face it there are fewer of them on our high streets) then the others? Well, lets take a look at the numbers…

Is there a relationship between the ‘value for money’ element of a loyalty program and customer loyalty in coffee? 

What you may find interesting is that despite Costa’s lowest performing loyalty program on value for money, according to Allegra Strategies it is number one on the high street with 47% market share.

This is despite offering less than half the value of the Caffè Nero loyalty program and it does not look to be slowing down either, with Whitbread looking to take on 20% more stores by 2018.

Conversely, the same report suggests that Caffè Nero has 13% market share of the coffee business in the UK, while Starbucks has around 27%.

So if we take market share as a proxy for repeat purchase, as lets face it the coffee market in the UK is rather saturated, than the ‘value for money’ element of a loyalty program is less important then perhaps other aspects of an offering. (Also see Four Steps to Build Customer Loyalty in Retail).

Are there any other factors at play? Well, one can draw one of two conclusions.

The first is that a loyalty program does not in isolation lead to greater customer loyalty and that there are a host of factors that drive this.

The second, is slightly less damning of loyalty programs, in that the ‘value for money’ aspect of a loyalty program may well be less important in driving repeat purchase then other aspects of the program.

For instance, both the Costa and Starbucks programs are able to capture customer data and deploy much greater levels of personalisation in both the offers and communications to their customers. This itself may act as a stronger influencing factor in creating a relationship then simply offering discounts off coffee.

We'll let you decide which floats your boat in the morning.   

Ritchie Mehta

Published 21 September, 2015 by Ritchie Mehta

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Irina Gavriliu, Marketing Executive at Printsome

Even if Costa does not offer the best value for money in the loyalty program, their brand awareness will help them maintain the leading market share in UK.

over 2 years ago

Ritchie Mehta

Ritchie Mehta, Managing Director at The Marketing Lounge Partnership CRM and Loyalty

Agreed - brand awareness/equity is a critical lever in building and maintaining customer loyalty. May be interested in the previous post on Four Steps to Build Customer Loyalty in Retail.

over 2 years ago

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Deri Jones, CEO at SciVisum Ltd

Indeed, market-share is a multifaceted thing. Not always linked to recent client satisfaction or loyalty.
Like Skype's long outage yesterday.... :<)

Incidentally Ritchie, your page is broken in IE and Firefox, text being covered by the right-hand-side menus.

In the section:
- Which coffee chain offers the best 'value for money' loyalty program?

Maybe something to do with the <table> settings used in that section?

over 2 years ago

Will Young

Will Young, CEO at Rais Opportunities Ltd

Loyalty is so complex and multi-faceted, plus it's hard to create a level playing field to measure it. Store distribution and a very tangible customer loyalty token certainly helped Tesco build loyalty but as you rightly say Ritchie, a scheme alone won't drive loyalty if it's not used to improve the customer experience.

How many people have a Costa card, a Nero card, and a Starbucks card and just choose whichever is most conveniently located? The real test would be to ask a significant volume of consumers to pick which shop to go to if they were all metres apart from one another. Would value for money come into play then? Or brand awareness/trust? Or simply product range/taste?

What disappoints me with Costa and Starbucks is their lack of relevant engagement with me as a consumer and card holder. Costa sent me through generic messages and Starbucks never send anything. They're sitting on a wealth of data but how well are they using it to engage their consumers? Perhaps they simply don't care, given their distribution dominance?

over 2 years ago

Joe Tarragano

Joe Tarragano, Group Managing Director at Pentagon

These aren't so much a loyalty program as a reward mechanism for purchase. Loyalty, assuming you believe that still exists, comes from delivering an me a price, product & service proposition that I value and am prepared to seek out and pay a premium for.

What still surprises me is the lack of smart use of data and personalisation. I've used the Starbucks app religiously for years, to pay for my daily decaf Americano. So why Starbucks keeps sending offers that try to stretch me into Vanilla Latte's and the like is beyond me. Likewise, I stopped buying a couple months back, yet their app ageolocates me every day as I walk past the same store. I refuse to go back until they send me a "We've missed you, come back" discount.

And the Starbucks app is one of the half dozen I did use every single day, and we all know the stats around enormous it is as a payment tool. So why Cafe Nero still insists on using an anonymous paper solution is unclear to me.

over 2 years ago

Ritchie Mehta

Ritchie Mehta, Managing Director at The Marketing Lounge Partnership CRM and Loyalty

Deri - thanks for pointing out, Ill look into the formatting issue.

Will - completely see where your coming from with your testing approach and think its would be an interesting experiment. Furthermore, your right that most people will just have a host of loyalty cards in their wallet which plays nicely to Joes point i.e. does loyalty actually exist...

Joe - I to an unclear why Cafe Nero maintains the paper format, except that perhaps its more customer friendly then an app (but clearly you lose the ability to capture data). Anecdotally, I remember when Nandos switched to an app/electronic card many of my friends just stopped using it as it was just that little bit harder to see the rewards. Would love to know if the change over actually impacted the bottom line... perhaps for Cafe Nero its simply a case of if it isn't broken, why fit it?

over 2 years ago

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