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Improving coffee loyalty schemes

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!

This 1,997th post was filed under: Headliner, , .

My shocking retail predictions

A little over twelve months ago, I was asked on a discussion forum to make predictions about the retail sector in 2012. I’d forgotten all about this until today, when somebody pointed out my prescience!

On 30th December 2011, I posted the following (forgive the reformatting!):

M&S is going to have a bad year: They seem to be doing everything humanly possible to disassemble the formula that brought them back from the brink a few years ago. On the other hand, WHSmith’s profits are up, even if their sales are down – I reckon they can ride out the storm for a while. My predictions for chains that will collapse are JJB (frankly surprised they’re still around); Past Times (feels like it’s had its day, so to speak); and Mothercare / ELC (already pulling out of town centres, doesn’t bode well).

And, indeed, M&S had a bad year, WHSmith did reasonably well, Past Times closed, JJB closed, and Mothercare is on the brink.

You might think I’d feel proud of my amazing predictive abilities, but in fact, I feel mainly freaked out – especially since my history with predictions isn’t great. It’s also weird to think that I correctly predicted thousands of job losses – it gives me a creepy sort of guilt, as though I’m somehow responsible.

So given the discomfort I’ve inadvertently caused myself, the only prediction I’ll make for this year is that the economy will fully recover with no more companies folding, and unemployment will hit record low levels. Though if that turns out to be true as well, I might displace Mr Soult as the media’s favourite north east retail analyst!

This 1,977th post was filed under: Headliner, News and Comment, , .

It’s Crimbo!

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Here’s me with Crimbo, the smallest of the Metrocentre’s oversized reindeer! It’s almost twelfth night, so I guess they’ll have to be dismantled soon!

This 1,961st post was filed under: Scrapbook, , , .

Photo-a-day 363: Obstacle course

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I surely can’t be the only person who finds it irritating when supermarkets decide to turn themselves into obstacle courses by bringing out every roll cage, pallet and cleaning trolley from their warehouse and abandoning them in the aisles…! It’s especially annoying when they line pallets along one side of an aisle, blocking access to all of the shelves on that side.

In an apparently litigious culture, it’s a wonder these retailers aren’t sued every five minutes by shoppers tripping over the unattended cardboard boxes that are frequently found littering the aisles.

This 1,949th post was filed under: Photo-a-day 2012, , .

Photo-a-day 358: Extreme shopping

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I attempted a 6.30am trip to M&S for Christmas food this morning, reasoning that I might avoid the crowds. Unfortunately, it seems the crowds had the same idea…! I can’t believe how busy it was at that time in the morning! I’m now recovering in the cafe.

This 1,941st post was filed under: Photo-a-day 2012, .

Photo-a-day 350: Keep calm

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Since I’m a photo behind and need to make up the numbers, and since I’m on a roll of Christmas-retail themed moans…

How insulting is this Argos campaign?! In the spirit of equality, I look forward to next year’s “Keep Calm Women” follow-up. I assume it will perpetuate a ditzy, dim, over-excitable, self-obsessed stereotype of women that’s as insulting as the lazy, dunderheaded, disorganised, misogynist stereotype of men perpetuated this year by retailers like Argos and Asda.

But I like to think that they will see sense and reflect the reality of 21st century life in the UK. After all, isn’t this the season of hope?

This 1,931st post was filed under: Photo-a-day 2012, .

Photo-a-day 349: Are you ready for Easter?

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It seems that WHSmith have started their Easter campaign. Depressing, isn’t it? And I would (perhaps naively) have thought that reminding consumers of another retail-driven spending spree around the corner would depress Christmas spending.

But with a mere 106 days left for customers to get their hands on some themed chocolate, who can blame them for trying?

This 1,930th post was filed under: Photo-a-day 2012, .

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