Case Study: Coffee Shop Prizes Engagement Over Customer Acquisition

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Customer engagement will always trump customer acquisition at Groundwork Coffee, an organic coffee roaster with seven outposts in the Southern California area. According to David Hermann, who heads up marketing and business development for the company, Groundwork has been able to increase both the frequency of customer visits and the average ticket per visit by partnering with a digital loyalty program called FiveStars.

Which digital marketing platforms do you use on a regular basis for Groundwork?
In terms of marketing right now, really it’s a lot of guerilla marketing and Facebook. We do a lot of handouts. Not necessarily coupons, but we do postcard handouts in Santa Monica and downtown to get people to come in during off hours. We also have the ability to communicate with our customers through our loyalty program, FiveStars. It’s a start-up based in San Francisco, and it’s a universal loyalty card. Customers can use their loyalty cards at all participating FiveStars locations, and we are able to email or Facebook with those customers. We’re able to communicate directly with different customer sub-groups, as well, which is really important when you’re trying to target new customers, customers who might have fallen off, or your VIPs.

What sub-groups are most important when it comes to sending targeted messages?
Primarily we focus on sales numbers, so really it’s just based on quantities and transactions. We have VIPs, and those are the people who are coming in two or three times a day. It’s surprising when you have a loyalty program, you can actually target some customers and watch, when they start getting closer to their reward, instead of coming in twice a day, they start coming in three times a day. There’s a whole psychology involved. Of course, there are always the customers who used to come in and then dropped off, and we’re able to target those as well. We have the ability to send out [messages that say], “Have a drink on us,” or “Have a pastry on us when you buy a drink,” in order to get those customers to come back. We can also actually communicate with them and say, “We noticed that you don’t come in anymore. Is there a reason why?” A lot of times they may have had a bad experience or they changed jobs, so they’re not in the neighborhood. But there is some legitimate information that you can glean from that, and that helps us modify our training or work with our staff to improve the experience that our customers have.

What was it about FiveStars that made you want to partner with them, versus any of the other loyalty programs out there right now?
Our partnership was really based on the fact that they were able to give us the ability to use analytics to watch what our customers were doing and to communicate with them. And, the fact that it’s not just a singular program; it’s more community based. There are other companies involved with FiveStars, so every time we get a customer, it benefits the other [businesses that] are participating. And every time they get a customer, it benefits us as well. FiveStars sends out helpful hints to their customers, like, “You should check out this coffee shop down the street from the sandwich shop you’re always at,” and that’s important for us. Right now we’ve been working with them since January, and [we’ve gotten] something like 600 new original customers that have been sent over to us from FiveStars. That’s a lot. If those people remain loyal customers, or at least come in and purchased with us a couple of times, then that’s a lot of added revenue.

How do the rewards work? Does FiveStar handle redemptions, or do you?
You can do whatever you want, which makes it easy. Right now, ours is 10 unique transactions and you get a free drink, then 30 and you get a Groundwork mug. We’re able to modify that at any point, so we can add more tiers to our program. Or, we have the ability to do a tiered program based on how much money you actually spend. So, if [you spend] $5, you get one point. If it’s $10, you get two points. We can also participate with local locations. Say you had dinner or lunch at another FiveStars place down the street, you can then come into our coffee shop and we might give you 25%-off if you get a cup of coffee afterwards. So, [FiveStars has] allotted different options, and they have a really good help staff to help you figure out how to implement some of these things, too.

How does the program work in terms of cost? What has the ROI been so far?
There’s a per-month retainer for each location. [The fee] is by location, so we don’t pay for the customer load at all. Beyond the game factor of increasing average tickets and also increasing the frequency of visits, the added benefit is really gleaning the ability to communicate with the customers. That alone is super expensive. Paying someone to put together a database of customer emails, or being able to communicate with your customers over Facebook, [is expensive]. Other programs are very costly when it comes to trying to implement that, but [FiveStars] has made it a part of the program, so it’s not added on in terms of cost. We’re able to get that information and that capability without having to spend extra money, so it’s really saved us in terms of our marketing.

It seems like customer acquisition platforms were more popular last year, and now businesses are focusing more on implementing loyalty programs instead. Why do you think that is?
Well, Groupon and LivingSocial were [popular] for a hot minute because they were really aggressive at trying to get people to participate. They still are; they’re very aggressive. The problem is when you sell an item with those companies, your RIO is really low because you have to sacrifice a lot of your profit. You also get a lot of deal seekers, people who will use the deal and then have no intention of returning.

What we decided to do was to focus more on the customers in our community who were already engaged with us and to reward their loyalty. FiveStars said, “We can help you reward your loyal customers, and then we also have a way in which we can help drive new customers to you without having to sacrifice your profitability with a coupon.” It’s like a win/win for us. Why not communicate with your existing customers? Especially with our brand, there’s definitely a family-based atmosphere with people who have been coming in for years. So, it was about time we had a program that really focused on giving back to those customers. They really like it, so we’ve had a really high response rate. I think my estimates are that anywhere between 75% and 85% of our customers are participating in our loyalty program right now.

Stephanie Miles is an associate editor at Street Fight. This interview has been edited for length and clarity.

Click here to read more Street Fight local merchant case studies.

Stephanie Miles is a journalist who covers personal finance, technology, and real estate. As Street Fight’s senior editor, she is particularly interested in how local merchants and national brands are utilizing hyperlocal technology to reach consumers. She has written for FHM, the Daily News, Working World, Gawker, Cityfile, and Recessionwire.