Pret a Manger has become the first high street chain to introduce a coffee subscription model as it seeks to entice customers back into quiet coffee shops. To understand whether it’s a smart move, you need to do the maths, writes Tim Peniston-Bird, founder of Orangutan and an expert in customer loyalty programmes.
A subscription service that offers customers up to 35 cups of coffee per week for less than £5 – is that financial suicide or smart thinking?
On the face of it, this is a desperate action for a business that has seen their core customers abandon them in their city centre and station locations.
Let’s look at it from another perspective: although there has been a Covid ghost haunting our high-streets, there are still people there – those that live or work there – and they will still be wanting a number of coffees per day.
Currently the majority of these people will be serviced by their trusty kettle and jar of Nescafe, but they may want to treat themselves to a couple of ‘fancy’ coffees a week from one of their local coffee shops.
These same people could also be looking for a coffee shop to use as a meeting location (especially if they have outdoor seating that most offices don’t).
Currently, of a typical 20 cups per person, per week, Pret are only likely to be selling two to an average customer (just think about how many times you get a drink from exactly the same shop in a week).
Now, imagine you’re one of those customers, and you take out a Pret plan – you already have two coffees per week at £3.50, so you’re already saving, and if you’re savvy, you can increase this to 10 per week by grabbing one on the way to work, at lunchtime, or suggesting Pret as a the best place for that meeting.
This shift in behaviour means:
– They visit five times more per week and in most cases will purchase something else (snack, lunch, drink for someone else) say £2 per visit
– Frequently bring other people who will pay full price – say £3 per visit
– Based on this, Pret will achieve £55 per week (£2+£3 x 10 plus the £5 per week subscription) of revenue vs the £17 (£3.50 for coffee + £2 + £3 x2).
Obviously we would need to take account of the extra £3.2 per week ingredient cost but the maths is still compelling with a 300%+ increase in revenue.
Subscriptions have become one of the real hot topics in customer loyalty. They tie the customer in financially which lets the provider plan ahead.
By increasing customer interactions, subscriptions make it much easier to build a relationship, upsell and cross-sell – while removing the pain point of paying on each transaction.