In attempting to answer the question ‘Do loyalty programs work?”, this article explores Costa Club, examining key performance indicators to determine the success of Costa’s loyalty strategy. It provides valuable insights for loyalty consultants, marketing managers and CMOs that are exploring best-practice loyalty program design and execution.
The café industry is highly-competitive, meaning businesses are constantly seeking ways to retain customers and boost sales. Costa Coffee, a prominent player in the industry, has implemented a highly effective loyalty program that is generating significant benefits for the company. Costa Club offers attractive benefits, including free drinks and birthday treats, aiming to reward frequent customers and encourage repeat visits.
The Evolution of Costa Coffee’s Loyalty Program
Costa Coffee has been at the forefront of customer loyalty programs in the coffee industry. Since its inception in 2010, Costa Club has undergone significant changes to adapt to the evolving market and customer expectations.
From points to beans: Simplifying the rewards system
The original Costa Club, launched in March 2010, was an early points-based loyalty program in the cafe industry. It offered customers five points for every £1 spent in stores, with each point worth 1p. This system, while innovative at the time, became increasingly complex and less appealing as the market grew more competitive.
Recognising the need for change, Costa Coffee revamped its loyalty program in 2021. The new program design replaced points with ‘beans’. This shift aimed to simplify the reward process and make it more engaging for customers. Under the new program, members earn one bean for every handcrafted drink purchased, regardless of its price. This change has made the program easier to understand and more straightforward for customers to track their progress towards rewards.
Increased generosity: Free drinks and birthday treats
The transition to the bean-based system has also resulted in increased generosity from Costa Coffee. Previously, customers needed to accumulate a significant number of points to earn a free drink. With the new Costa Club, members can claim a free drink after collecting just 10 beans. This change has substantially reduced the amount customers need to spend before receiving a reward, making the program more attractive and accessible.
Costa Coffee has further enhanced its loyalty offering by introducing additional perks. One notable addition is the birthday treat, where members receive a free cake from the sweet counter on their birthday. This personal touch adds a sense of celebration and appreciation for loyal customers.
The company has also introduced a sustainability incentive. Customers using reusable cups earn an extra bean with each purchase, allowing them to reach the free drink threshold even faster. This approach not only rewards loyalty but also encourages environmentally friendly behaviour.
Digital transformation: The Costa Coffee app
A crucial aspect of Costa Coffee’s loyalty program evolution has been its digital transformation. The introduction of the Costa Coffee app has played a significant role in modernising the customer experience and streamlining the rewards process.
The app serves as a digital hub for the Costa Club, allowing members to easily track their bean balance, redeem rewards, and access exclusive offers. It has also enabled Costa Coffee to implement features such as click-and-collect and contactless ordering, enhancing convenience for customers.
One of the app’s key features is its ability to facilitate bean collection at Costa Express machines. With over 11,000 Express machines located across Great Britain, this integration has significantly expanded the reach of the loyalty program beyond traditional store locations.
The digital platform has also paved the way for more personalised marketing efforts. Costa Coffee tailors offers and communications based on individual customer preferences and behaviours, creating a more engaging and relevant experience for each member.
The Costa Coffee app has seen substantial uptake among customers, with over 70% of Costa Club transactions now made via the app. This shift towards digital engagement has not only improved the customer experience but has also provided Costa Coffee with valuable data insights to further refine its loyalty strategy.
Through these evolutionary steps, Costa Coffee has transformed its loyalty program into a more customer-centric, digitally-driven, and rewarding experience. The simplified bean system, increased generosity, and digital integration have all contributed to making Costa Club a key differentiator in the competitive cafe market.
Measuring the Success: Key Performance Indicators
To evaluate the effectiveness of Costa Coffee’s loyalty program, several key performance indicators (KPIs) are used. These metrics provide valuable insights into the program’s impact on customer behaviour, brand perception, and overall business performance.
Growth in total transactions
One of the most significant indicators of the redesigned Costa Club’s success is the impressive 16% increase in total transactions. This substantial growth demonstrates the program’s ability to drive customer engagement and boost sales. The loyalty scheme has generated an additional £1.2 million in profit each month, highlighting its positive impact on the company’s bottom line.
Increase in app-based transactions
The digital transformation of Costa’s loyalty program has led to a remarkable shift in customer behaviour. As detailed earlier, over 70% of Costa Club transactions are made via the app. This high adoption rate of the digital platform not only streamlines the customer experience but also provides Costa with valuable data insights to refine its loyalty strategy further.
Boost in repeat visits and additional purchases
Costa Club has proven effective in encouraging repeat visits and additional purchases. Customers redeeming their free coffee now account for 8% of all transactions and 23% of transactions logged through the Costa Coffee app. Moreover, the birthday treat offer has been particularly successful, with 60% of those claiming their free cake making additional purchases within the same transaction. Impressively, 71% of customers who redeemed their birthday cake returned to Costa within a month.
These KPIs demonstrate the effectiveness of Costa Coffee’s loyalty program in driving customer engagement, increasing sales, and fostering brand loyalty. Costa Club has successfully leveraged digital technology and personalised rewards to create a more engaging and rewarding experience for its customers. As the program continues to evolve, these metrics will be crucial in guiding future improvements and ensuring the ongoing success of Costa Coffee’s customer loyalty initiatives.
The Power of Freebies: Driving Customer Behaviour
Costa Club has demonstrated the significant impact of freebies on customer behaviour. By offering complimentary drinks, birthday treats, and sustainability incentives, Costa Coffee has successfully encouraged repeat purchases and fostered customer loyalty.
Free drinks as a motivator for repeat purchases
Costa Club’s bean-based reward system has proven to be a powerful motivator for customers to make repeat purchases. The effectiveness of free drinks as a loyalty tool is evident across the coffee industry. For instance, Starbucks attributes over 40% of its total sales to its rewards program, which boasts 31 million members in the US alone. Similarly, Caffè Nero offers a free drink for every nine stamps collected, which translates to £25.20 spent to earn a complimentary beverage.
Costa’s strategy of offering a free drink after just 10 purchases has made earning rewards more accessible and appealing to customers.
Birthday treats encouraging additional spending
Costa Club birthday treat appears to be particularly effective.
The power of birthday freebies has been demonstrated by other brands as well. For example, Krispy Kreme offers a free doughnut to members during their birthday month, while Greggs provides a free cake or doughnut to loyalty scheme members. These birthday treats not only create goodwill but also drive footfall and additional spending.
Sustainability incentives: Rewards for reusable cups
Costa Coffee has made sustainability a key part of its revised loyalty proposition. As detailed earlier, members using reusable cups earn an extra bean with each purchase, allowing them to reach the free drink threshold even faster. This incentive has had a significant impact on customer behaviour, with data showing that members using reusable cups visit Costa stores more often and spend more heavily.
The success of this sustainability-focused approach is evident in the increased engagement with the loyalty scheme. Costa is enjoying not only increased sales but also a positive impact on its brand image as it demonstrates a commitment to environmental issues that resonate with its customer base.
Other coffee chains have also recognised the power of sustainability incentives. For instance, Starbucks offers a discount to customers who bring their own cups, while Pret A Manger provides a substantial 50p discount for reusable cup users.
By incorporating these three key elements – free drinks, birthday treats, and sustainability incentives – into its loyalty program, Costa Coffee has created a powerful tool for driving customer behaviour. Costa Club benefits have successfully encouraged repeat purchases, increased customer spending, and fostered a sense of loyalty among its members. As the coffee industry continues to evolve, these strategies will likely remain crucial in maintaining and growing customer loyalty.
Conclusion
The Costa Coffee loyalty program has shown its effectiveness in driving customer behaviour and boosting sales. By offering free drinks, birthday treats, and sustainability incentives, Costa has succeeded in encouraging repeat visits and fostering a strong sense of customer loyalty. The simplified bean system, increased generosity, and digital integration have all played a part in making the Costa Club a key differentiator in the competitive coffee market.
As the coffee industry continues to evolve, loyalty programs like Costa’s will likely remain crucial to maintain and grow customer loyalty. The success of Costa’s approach, as seen in the increased transactions and additional profit, shows that well-designed loyalty programs can have a significant impact on a company’s bottom line. Do loyalty programs work? Costs Coffee continue to demonstrate that they do if designed and executed using best-practice principles.
Do Loyalty Programs Work? Explore other examples of winning loyalty programs here.
