How Costa Coffee used data to drive loyalty and sales

With a coffee shop, maybe two, on every street corner coffee has become the ultimate takeaway commodity. Yet despite coffee shop proliferation and fierce rivalry between branded chains, British-owned Costa Coffee says it's building deep emotional connections with its customers through clever use of data.

Increased sales, increased per customer spend and increased frequency of visits are just a few of the rewards that have come from Costa Coffee Club, the Whitbread-owned business's three year-old U.K. customer loyalty program.

Not bad going for a business which, though ubiquitous across the U.K.--where, with more outlets than McDonalds it is the country's biggest food and drink chain--had long under-estimated the extent of coffee shop customers' brand promiscuity.

"Four years ago we conducted research to understand levels of customer loyalty in our marketplace and were surprised at the high level of cross-brand use," Costa U.K. marketing director Kevin Hydes explains.

"We thought we had a hardcore set of consumers, but the findings showed this was only partly true--5% of our customer base drove 46% of our customer transactions--so we set out to find a way to build loyalty and create active brand preference."

Launched in spring 2010, Costa Coffee Club--which secured Costa the Grand Prix at the recent Marketing Week Data Strategy Awards in the U.K.--is a free card-based reward program enabling customers to earn points with every purchase to spend on any product in Costa stores nationwide.

The mechanic is simple: users get five points per spent which can be "spent" on Costa products when the total passes certain thresholds.

Of the 8 million cards so far issued, 3 million of these are active--in other words, have been used within the last six months. Of the 3 million active card users, 1.6 million are "registered"--meaning they have provided email addresses to receive twice monthly Cost Club Card e-mailings.

Making Loyalty Work

Loyalty programs aren't exactly a big innovation, but they're seldom done right. One thing that sets Costa's loyalty scheme apart from others is the response rates it has achieved among active users.

Its emailings alternate between promotional offers and brand engagement. Yet though their structure and style is simple and straightforward, an estimated 35% are opened by recipients and rates of redemption on the offers they contain have, on occasion, exceeded 70%.

"There are only two communications a month via email but these generate high levels of engagement," says Tom Phillips, head of CRM at direct agency MRM Meteorite which created, launched and has run Costa Coffee Club during its first three years.

Coffee purchasing is high frequency but low engagement--there's only so much a brand can say about coffee: personalization is key. So, analyzing club members' data across retail, social media and mobile, segmented and personalized emails were created matching offers to a recipient's card balance and spending patterns.

Each email contains 25 different elements which can be personalized according to the different product combinations customers choose (and the many more they could be nudged towards), what stage they are at in the Costa Coffee Club lifecycle, purchasing patterns, consumption habits and need state.

"The emails are designed to take up just ten seconds of your life," Phillips explains. "It's a very light touch nudge-down for further engagement with Costa without leaving the customer feeling bombarded or stopped from getting on with other stuff."

Another point of difference is the extent to which Costa has evolved Costa Coffee Club.

Following its launch, Costa built into it a rolling e-feedback survey through which each registered user is asked every three months five or six simple questions about their last visit. One way the findings are used is for a daily dashboard of insights about stores local store managers can then analyze.

Reluctant to reveal precise figures, Hydes says Costa Club Coffee members visit its stores more frequently and spend more per transaction. Key to reaping the benefits of this, however, has been ensuring they actively redeem the points they've accrued on their cards.

This is where the brand's sophisticated e-CRM strategy kicks in. By combining an understanding of where, what, why and when registered Costa Coffee Club members buy with personalized e-marketing, Costa is motivating customers to consume more and engage and interact more intimately with the brand.

Small wonder the business has recently introduced the club in Ireland and now plans to roll out a similar approach in markets elsewhere.

"Ultimately, the success of Costa Coffee Club is the extent to which it has enabled us to get closer to out customers," Hydes says. "We're lucky that we are a brand people tend to like, but you can't just sit back and take that for granted."


Kevin Hydes on Costa Coffee Club's Core Principles

• Stay relevant to the product, it's only and all about Costa's quality coffee for coffee lovers
• Keep it simple by not over-complicating club mechanics or messaging
• Get personal by sending only relevant and timely e-marketing communication
• Be democratic. Rather than demanding all club members share personal data, extra points are offered to those who chose to do so
  

Key Lessons Learned

• Encouraging club members to redeem points is key--if they don't, interest can lapse
• Personalization powers engagement and keeps e-communication timely and relevant
• Get it right and actively engaged customers visit more frequently, spend more per visit and promote Costa more actively among their peers
• Active brand preference can be achieved--even in the highly competitive takeaway coffee market
  

Meg Carter is a UK-based freelance journalist who has written widely on all aspects of branding, media, marketing & creativity for The Independent.