There are few things that are further from my area of expertise than coffee retailing, but here’s a thought that occurred to me last week, and that’s been festering ever since.
All the major coffee shop chains and many local coffee shops have loyalty schemes these days. These are often of a particular type: buy X coffees and received the Yth coffee free. The generosity of such schemes varies widely: X=5 at McDonald’s, X=9 at Caffe Nero, and X=15 at Starbucks. Some chains do something slightly different – Costa, for example, gives points equivalent to 5% of the customer’s spend to be redeemed on future purchases, but let’s set those alternative schemes to one side.
The thing that links all of the common schemes is they are effectively fixed ratio reinforcement schedules. That is, they entice customers to buy more coffee by promising a freebie every X visits. But a wealth of literature from psychology reveals that this isn’t really very effective in getting people to form habits, not least because their motivation to consume drops off immediately after claiming free coffee Y.
A far more effective method of getting people to form habits is to build a variable ratio reinforcement schedule. As with gambling, this means that the punter / customer never knows when the win / free product is going to materialise. This keeps motivation consistently high.
In practice, what I’m suggesting is that the ratio of visits to free coffees is kept the same (X+1:1), but that the free coffees are dispensed at random. This would appeal to me: I’d love to come to pay for a coffee and be unexpectedly told that this one’s free. An infrastructure change would be necessary for some coffee shops – stamp cards wouldn’t really work well for this – but, for example, Starbucks already uses swipe cards which could be made to work this way fairly easily.
Alternatively, instead of randomising at the individual customer level, the tills could be set to randomise across all customers. Or, to make it even simpler, with every coffee purchased, each customer could be given a scratchcard with a 1 in X+1 chance of winning a free coffee. The latter might even be preferable, as there would then be two “special” visits: the one in which the customer wins, and the one in which they redeem their winning scratchcard. The customer would feel rewarded for their loyalty twice as often at no extra cost to the vendor.
If judging on cost alone, why would I visit retailer A, where there is no chance of getting my drink for free on a particular visit, when I could visit retailer B, where there is a 1 in X+1 chance? Economic discounting would probably play against traditional schemes: I’d probably rather have the chance of a free coffee today than the certainty of a free coffee after X visits.
Of course, retailers would have to be careful about how they presented this scheme: it would likely be to the detriment of any brand to associate themselves with gambling. Yet this seems like it should be a minor point, which should be easily overcome.
So here’s the thing: this idea appeals to me as a consumer, a wealth of literature suggests that it could increase trade, yet (to my knowledge) no-one uses it. Why not? Where’s the rub? What have I overlooked in my assessment? Tell me why I’m wrong!