How much should you pay for a new customer

At the start of October, Costa Express self-service machines dispensed 3 million free hot drinks across 8,500 UK locations in a promotion heralded by managing director Scott Martin as a “smash”.
For their retail partners, this was a big event. On average 342 cups of coffee or hot chocolate were given away to existing and new customers. That is a lot of business.
Even so, retail owner feedback was mixed. Convenience Store quoted one leading retailer who said the event was a big joke that brought chaos to his shops and cost him more than £1,000. Another retailer disagreed, saying that sales in his four shops were sharply up as coffee consumers spent money in store.
Martin thanked his retail partners for managing long queues and demand 10 times that of a usual day. The partners had to cover the cost of the milk in the drinks. For the average outlet, the cost would have been around £68.

Marketing efficiency

This looks like a great promotional result for both Costa Express and its partners.
Consumers who were members of the Costa Coffee Club were given the added incentive of scanning their phone app to have the chance of winning free coffee for a year. Its advertising leading up to the event encouraged non-members to sign up. While Costa has not released the results of this exercise, it is clear that giveaways are a great opportunity to learn more about your customers.
The data will also be useful to Costa. Every machine that dispensed more than 10 times the usual number of drinks could indicate an area where it will want to site more machines. While some regular drinkers may have waited to get a free drink on the day, most people were likely more opportunistic about taking advantage of the promotion.
While retailers may not have trapped information on new customers, they should benefit from the uptick in consumption. If an occasional purchaser took advantage to get a free drink, that will have reinforced in their mind that you sell Costa Coffee. If a regular purchaser took advantage, then you have given them something back to reward their loyalty. If someone came out of their way to get a free coffee and will never come back, then that is a customer you don’t want.
However, if your shop saw 10 times the usual number of customers, it tells you that you are in an area with a lot of opportunity for growth. Retaining only one in 10 of those shoppers will double your sales of coffee and add a bit more from the shop.

Who is right – the grumpy retailer or the positive retailer

The interesting thing about independent retail owners offering Costa Express is that they are putting a mini-franchise in their shops. Just like a Camelot lottery machine, you are making someone else’s brand available to your customers.
The thing about franchises is that they often demand that their partners invest in the overall business. As part of a national network, the promotions may not fit in with your business plans. If you are being forced to spend your own money on a promotion that you don’t think your business needs, then you will be unhappy.
A good example of this is the McDonalds franchise owners who are fighting its modernisation plans, which cost hundreds of thousands of pounds in capital costs. These owners are happy with where their business is today and do not look at the overall picture the same way that people at head office do.
Therefore both the grumpy retailer and the positive retailer are correct in their reaction to the promotion. As independent business people, they get to make their own decisions.
Moving forward, the retailer who works with the flow of Costa’s marketing investment is likely to get a better result. If you had 10 times the usual number of customers in your store, that shows you are not currently maximising your sales.

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