Customer Loyalty schemes and systems have become the stepping stone of business discussions and researches. While some consider this practice ineffective, the other launch large-scale and attractive customer loyalty programs and benefit from it. Hence, Costa Coffee Club loyalty program is regarded as the effective customer attraction strategy, as consumers prefer organizations pretending to care about them. The aim of the paper is to analyze the launch of the program, its effectiveness for Information Management, Financial Management and Human Resources Management strategies.
Considering the fact that customers’ loyalty can not be bought, the effectiveness of the system will be analyzed from several perspectives. Moreover, the general application of loyalty program requires accurate application of the provided changes, and observation of customer care strategy rules.
Costa Coffee Business Environment Analysis
In general, Costa Coffee is operating within a favorable business environment, and the customer loyalty strategy is required mainly for effective competitive struggle on the market. Considering the economic environment, it should be emphasized that the UK has been experiencing robust economic growth for the last decade, and the GDP growth signifies effective improvement of economic activity with further capital adequacy assessment that is based on risk assessment.
Another aspect of business environment is social and cultural perspective. On the one hand, cultural aspect influences business development, and defines the key directions of this development. The key direction selected by Costa Coffee is the development of Customer Care strategy which resulted in loyalty program launch. Considering the fact that the Costa’s experience is founded on the premise that consumers are getting perfect espresso-based drink, the key aim of the loyalty program is to deliver this premise to the wider audience. Finally, the offered approached received the immense response across the Costa cafes.
Customer Loyalty Principles
In fact, the customer loyalty strategy is regarded as the stepping stone in business practices. While some consider it ineffective, and the regard it as the breaking mechanism for the customer care development, the others benefit from implementing effective customer loyalty strategy, and provide further development of customer care principles. The general research principles of customer loyalty are associated with the statement that companies, implementing such programs do not have the other alternative of attracting consumers. Hence, Griffin (2005, p. 31) emphasizes the following statement:
Companies have discovered that coupons and points schemes are a good way to entice struggling customers back to their shops. The trend of developing a points-based system that “rewards” customers on a mass level for purchases they make, started back in the late 1980′s and a number of very large and successful point based loyalty schemes have been created. The airline industry led this charge and it was not long before customers, now with a minimum of three different loyalty cards, became familiar and then jaded with all the points that were being thrown at them.
In the light of this consideration, the actual importance of loyalty schemes look like the way of reaching the desired achievements by the companies who have already tried other ways, and did not succeed. Loyalty schemes may increase sales, however, most of them do not affect loyalty. In accordance with the research by Beck and Smith (2008), loyalty is inevitable without deep emotional and meaningful communication with customers, while outcomes of such loyalty program often do not satisfy possible expectations. Customers become quickly tired of such programs, hence, it is impossible to make long-term forecasts on the matters of loyalty program effectiveness. (Griffin, 2005) However, other researchers claim that the problem is not in the customer loyalty schemes, but in poor services while these services are decorated with loyalty scheme. Hence, the companies rely on customers’ loyalty instead of offering high-quality services and regulating customer care strategy.
Costa Coffee Customer Loyalty
It is considered that Costa Coffee is one of the latest companies in the UK that resorted to customer loyalty program. In fact, most people like coffee, and the idea seems quite reasonable, as coffee makers are numerous, while the quality of the services leaves much to be desired. Hence, performing a principle of serving high quality drinks along with high quality services, the company aimed to increase the sales level by attracting coffee lovers. However, the customer card is not active within the entire network, as franchised cafes and shops of Costa Coffee do not accept these cards, and consumers often left disappointed. Hence, previously to implementing customer loyalty strategy, the company needs to take care of customer care strategy, and achieve consent with other network players and franchisees.
The entire informational network of Costa Coffee involves up to 750 stores in the UK and in international network, hence the actual importance of proper informational management can not be underestimated. The actual problem of Informational management strategy have been already described, as franchisees do not always observe the customer loyalty principles adopted by the company.
The entire information management system is based on developing the franchising network, and maximizing the effectiveness of financial performance of the entire brand name. Information flow of the company involves data concerning financial success of the franchisees, customer care principles and income of the stores and clusters. In general, the company is aimed at expanding the existing network, and collecting business performance experience of all the network components. Nevertheless, the actual importance of information management strategy is closely linked with collecting customer care experience.
Implementation of the customer loyalty scheme did not have an essential effect on the informational management strategy, however, the essential problem was revealed associated with serving consumers: some franchisees do not wish to accept the implemented system, hence, the system does not have sufficient capacity for showing effective results. Hence, information collection and management strategies do not work. In accordance with Michael (2009, p. 486), the following statement should be emphasized:
Customer Information Management is designed to assist in customer segmentation strategies. Customer segmentation involves analyzing customer records to determine which customers are the most profitable. One of the classic business rules of thumb is called the 80/20 rule, also known as the Pareto principle : 80% of your profits come from 20% of your customers. A good customer segmentation strategy will accord preferential treatment to the most profitable customers, increasing customer loyalty and therefore customer retention and improving profitability over the long run.
In the light of this statement, it should be emphasized that the actual importance of this strategy is revealed for hospitality industry. However, information management system of Costa Café does not allow providing effective customer segmentation.
In fact, if a company implements a customer loyalty scheme, one of the key aims of this system is the implementation of the more effective problem solution mechanism. Hence, the company shows real care of the customers, and the problems and cases are the integral part of informational flow. On the one hand, the problem solving strategy is the key thread of the loyalty scheme, on the other hand, considering the fact that some franchisees are not going to participate in this program, there is no way of creating effective information management system.
Implementation of effective customer loyalty scheme is inevitable without adapting financial management principles. Considering the fact that consumers of Costa Coffee have an opportunity to earn points by making orders, the company needs to have united accounting system, and united point accounting scheme. The stated above problems with franchisees may be solved by implementing the united accounting system, however, the company will have to bear essential expenses that are not adequate for the entire loyalty scheme, especially considering the fact that any loyalty scheme is not maintained for more than two years (Smithers, 2010): it is either abolished, or evolved. However, as it is stated by Smithers (2010), customer loyalty does not originate profits directly, however, everything depends on customer care strategy and customer orientation principle. Satisfaction is only the first step of improving business parameters, and loyalty scheme requires effective maintenance. Additionally, customer loyalty scheme of Costa Coffee is focused on customer research and framing the key patterns of customer behavior and purchasing capacities. When customers have an opportunity to state their preferences, they become more loyal; however, for this loyalty became advantageous for the organization, these preferences should be implemented. Costa Coffee will have to extend the menu choice, improve the quality of services in some cafes, and improve the loyalty scheme implementation through the entire network. Thus, there will be a chance for financial performance improvement.
Considering the financial management strategy changes, these are linked with linking loyalty to profitability.
The changes and actions, given in the scheme allowed company to focus on the specific resources and customer requirements that was aimed at providing the most effective return and profitability. Nevertheless, the key strategic elements require broader organizational satisfaction research; and, as it is stated by Smithers (2010, p. 567):
Results of the customer preferences research typically may be deployed across various functional areas such as marketing, quality and finance, it is critical that these managers be involved in defining the research objectives and identifying their particular information needs and how they will use the results. This involvement will ensure functional ownership of results and consistency with overall business strategy.
In the light of this statement, the problem of franchisees seems not essential, as, they may not be involved into the customer research, as well as the resource allocation processes. Nevertheless, consumers’ interests will stay violated, as they need to get high quality services, and be sure that the guaranteed obligations will be observed. Nevertheless, this may be used as a marketing advantage between franchisers, hence, those who participate in loyalty program will be able to attract more consumers.
Human Resources Management
Customer-focused HRM is generally regarded as a stepping stone of entire loyalty scheme regardless of its origin. Employees should be the origin of customer care, and they need to show that consumers/visitors are treated like the dearest friends. Hence, the customers will reveal their loyalty if they are treated properly. Hence, the personnel requires training and clear instructions, how consumers should be treated, and this means additional expenses.
Current HRM strategy, implemented in Costa Coffee is based on the principle that personnel is selected in order to suit company’s requirements in the sphere of customer care, financial performance, technical performance and quality of the services provided. Considering quality assessments given in Thomas (2010), it should be emphasized that quality rating of this company is 60%. This means that up to 40% of requirements are not satisfied. Hence, the company needs to provide changed in the sphere of HRM. Personnel should be strained to satisfy consumers’ needs, and register their preferences. Employing customer care specialists for clusters participating in the loyalty campaign should be regarded ass the strategic step of no.1 priority, however, Costa Coffee has not provided these actions yet. Hence, as it is stated by Griffin (2005, p. 119):
The problem with implementing these strategies is that they cannot lead to the development of a sustainable competitive advantage. This may be regarded as a critical consideration in the current business environment that is featured with a particular level of competitive rivalry.
Consequently, the aspect of organizational skill maintenance and training for employees may be included in the informational management system, and integrate the key HRM requirements. The strategic processes that are required for proper HRM management became consumer-focused, however, the focus is shifted to achieving benefits, while it should be shifted towards customers’ preferences consideration.
The implementation of customer loyalty scheme helped the organization to realize the essence of the difference between customer relations and employee relations, and provide the corresponding changes in the sphere of resource allocation, as well as the HRM strategy. Hence, the customer relations strategy is aimed at optimizing the possible values of customer’s preferences, while employee relation is based on the necessity to attract, retain and motivate employees for better satisfaction of customer’s requirements. Hence, the key premise of the HRM strategy in Costa Coffee is regulating proper employee behaviour for the company could succeed in customer care strategy implementation
Customer loyalty strategy is generally regarded as an ineffective and outdated way of attracting customers which have regained its popularity lately. Nevertheless while some researchers argue on the matters of its inefficiency, companies implement the key principles of loyalty schemes, and adapt them to the contemporary realities of the market. Hence, implementation of the card loyalty system in Costa Coffee originated particular problems with some franchisee clusters, and caused changes in Informational, Financial and HR management strategies. The key changes are associated with collecting, structuring and implementing customers’ preferences and requirements, as well as performing researches required. The stepping stone of the entire loyalty system is the proper HRM strategy, as employees need to be trained correspondingly, and motivated for effective performance of the entire loyalty strategy.
Beck, T., & Smith, A. 2008. The Four Keys to Customer Loyalty. The Catalyst, 35(1), 17
Griffin, J. 2005. Customer Loyalty: How to Earn It, How to Keep It (Rev. ed.). San Francisco: Jossey-Bass.
Michael, N. 2009. Customer Loyalty: Elusive, but Critical To Create a Cadre of Customer Advocates, Focus Your Efforts on “The Three Rs”. ABA Banking Journal, 99(2), 42
Smithers C. 2009. Can customer loyalty be bought? Business Journal 24(7), 567
Thomas, J. 2010. Costa Coffee rolls out customer loyalty card. Marketingmagazine. Web.