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.