A well crafted loyalty card is designed to reward existing customers and be an attraction to new customers and that is an economic incentive. The most common one people find is at many coffee shops – buy ten drinks the eleventh one is free. The economics is basically if ten drinks are sold and eleven are created, this transaction would be the same as selling all your drinks at a 9.1% discount. The point is, if you know what your true cost for all eleven drinks, you can make a better decision on when the “free” drink is acquired.
Recently, a place I frequent changed its policy this is a large grocery that offers a coffee bar as you walk in the front door. It was “Buy 10 and get one free” like the example above. When I got my free drink I was told the new policy. Next time, when you get your free drink, it will only be a medium coffee, it can’t be a latte or any other designer drink.
So from the companies point of view, if everyone who gets a punch only buys a medium coffee (the least expense cost product), they will have the perfect 9.1% discount. But if they always spend $4.50 for the fancy drink and after 10 ($45) we give them a free $2.00 drink th e discount is really 4.25%.
From the customers point of view, am I going to keep track of the loyalty card for maybe two or three months for a 4.25% discount? Probably not. Maybe this is just me, but the employee did share that fewer people were bothering and on her shift, she was selling less coffee, period.
In this case, maybe the store just wanted to get out of the coffee business and didn’t see that customers with coffee lingered and purchased more or maybe they just don’t have the data to know.
If doing a loyalty program of any kind, make sure you know what the results is you want before you start and then track/count/analyze the results. Some programs are worth it in repeat business and referrals – so have no impact and are just that, a discount.
Knowing is better than guessing and tweaking a program with proven results should lead to increased results but you will never know unless you track. Knowing how your incentive equates to sales is the key.