Knowledge Bank Blog, Behaviour Change

Is Loyalty the New Battleground?

Earlier this month, Pret launched a monthly coffee (well “Barista prepared drinks”) subscription.

This is how it works. It costs £20 a month. You can cancel the subscription at any time. The first month is free. You can get up to 5 drinks per day – but only one drink every 30 minutes (no getting coffee for all your friends!).

You subscribe online. You get an email with a QR code that you add to your phone. You go to a store. Order a drink. Scan the QR code. Get your caffeine hit.

Is it a good deal? Well, here is some basic maths. You can have up to 5 drinks a day. Let’s assume the average cost of a drink is £2.50. Let’s assume 30 days in a month. So, 5 drinks a day at £2.50 per drink across 30 days = £375. You pay £20. That is incredible value.

Of course, you’ve got to be really committed to caffeine and value to max it out. But anyone who has more than 8 drinks a month is in credit. Have 1 coffee a day and you will save £55 a month.

It’s a great deal for shoppers. But it also might be a good deal for Pret. Why?

Firstly, most people who sign up will probably buy on average 1 coffee (or less) a day. In theory it could cost them a lot of money. In practice much less.

Secondly, it’s a great way of driving traffic to their stores. Every time someone goes in for a coffee there is an opportunity to sell them something else. A coffee in the morning is an opportunity to sell breakfast. It can also work the other way round. “Where shall I get some lunch?”…”Might as well go to Pret and get a ‘free’ coffee whilst I’m there”.

Will it work? Let’s see. Is it different? Yes – it’s something Pret are offering that competitors aren’t.

So why are we talking about this? Well, we think it’s a really interesting example of what may be the new battleground in our industry – loyalty.

In recent years the industry has been told that everything is about penetration. That is apparently how brands grow. The more buyers you have, the more successful your brand will be. This has led to brands prioritising tactics to drive penetration. The most obvious is price promotions. Run a discount and more shoppers will buy your brand. Your penetration figure goes up.

But penetration is quite a blunt instrument as a measure. It tells you if a shopper buys you. It doesn’t tell you how much they spend with you. Indeed most buyers of a brand will spend more on other brands in the category than they do on your brand. Most people who shop in a retailer will spend more in other retailers.

Your penetration number may look good. Your loyalty number (% of spend you get) much less so.

The job is not just to get more buyers. The job is to capture as much of their spend as you can.

How? Well…

It could meanoverinvesting in channels that are set up to support and drive loyalty. Online is a key channel here. Shoppers primarily use it for ease and convenience. What can be easier and more convenient (once you are set up with an online retailer) than buying the same things from the same retailer each time? As a brand you may not have to compete for the purchase each time. Get on the favourites list and you may have won. Permanently.

It could meanrewarding shoppers for loyalty rather than promiscuity. Currently shoppers are incentivised to buy a different brand each time. They buy you because you are on deal this time. They buy your competitor when they are on deal next time. What if you incentivised shoppers to buy your brand every time? Once you’ve taken out a Pret subscription why would you buy a coffee anywhere else? You want shoppers to think it makes most sense to buy your brand every time.

It could meanbuilding the habit of buying new products. Most new product launches focus their attention on trial. Getting shoppers to buy for the first time. They focus much less on repeat. Getting shoppers to buy next time. Then the time after that. Graze do it differently. If you sign up for a Graze online subscription you get your first box free. Standard. Then you get your 5th box free. Then your 10th box free. The incentives are there but you’ve got to keep buying to reach them. Most NPD doesn’t fail because of the trial numbers. It fails because of the repeat numbers.

It could meanaligning purchase cycles with consumption cycles. Take Yakult as an example. It’s a product that you’re supposed to drink once per day. Their brand message is “every day is a Yakult day”. It comes in a pack of seven. Buy once a week. Have every day. What about cereal bars? Maybe you want people to eat one every weekday. Packs of 5 then? Alpen, yes. Most other brands, no. Packs of 3 or 4. That looks like a missed opportunity.

Penetration is important. If you have no buyers, you have no sales. But a buyer who only buys you once a year is not much of a buyer. It’s their loyalty that determines their value to you.

Right, enough of this. We’re off to Pret for our 5th coffee of the day…

Feel free to forward. Have good weekend. Speak to you in a fortnight.