The rise of Pet’s Coffee
Cataracts is considering investing an additional $40 million annually to allow each US store to add approximately 20 hours of labor per week. This plan is based on the assumption that Increasing the work force would Improve the speed of service and therefore customer satisfaction and sales. We believe that such an assumption cannot be made since there Is Insufficient evidence of a correlation between Increasing man power and Improving efficiency. Additional work hours do not necessarily equate to an improved speed of service.
In fact, quite the opposite could happen due to several factors such as lack of training and equipment capacity issues.
Instead of investing $40 M in increased manpower, the marketing team believes that Cataracts should focus on improving customer loyalty among the 37% of Cataracts customers who are “satisfied”. We seek to convert them into “highly satisfied” customers by improvements to the Store Value Card (C.V.) incentives and better “soft skills” training among employees. Cataracts is currently facing a brand identity crisis.
The company was founded to be America’s “third place” on the principles of premium coffee, excellent service, and an Inviting atmosphere.
They are owe surprised to discover that customers no longer consider Cataracts a leader In two of these three brand components. The rise of Pet’s Coffee and Caribou Coffee has greatly deedless the appeal of Cataracts coffee and the Cataracts atmosphere, respectively. To its customers, Cataracts is seen as a good specialty coffee store that is widely available and convenient.
The Cataracts customer base can be segmented into unsatisfied, satisfied, and highly satisfied customers. It would be unproductive to target the unsatisfied customers as they would cost more to convert and are more likely to leave for the competition. The Cataracts target market should be the satisfied customers, with a goal of improving loyalty and visits.
Since the lifetime value of a satisfied customer is $922 and the lifetime value of a highly satisfied customer is $3170, every satisfied customer that becomes a highly satisfied customer represents a $2248 Increase in lifetime revenue (Exhibit 1).
To improve the C.V. card program, Cataracts should create a tiered system based on the number of purchases and the length of active membership. Customers with a higher number of purchases would receive elite status and gain additional rewards. In addition to earning free drinks, intermediate awards would include free upgrades or free pastries with drink purchase.
This would entice customers to purchase a beverage at regular price to get the reward. It is reasonable to expect the program to affect customers outside of this particular market segment.
Currently, 62% of revenue Is generated by 21% of the highly satisfied customers. With a properly incentive loyalty program, the 37% of satisfied customers could be induced to frequent the store more often. If the satisfied customer segment visited Cataracts one additional time per month, this would reinstate to additional revenue of over $MM per month (Exhibit 2). The loyalty card program can be the high leverage, low cost key to achieving this important objective.
According to customer surveys, Cataracts could Improve valued customer perception In an dilation 23% of customers (45% total) by focusing Improvements In “soft skills” training (friendlier/attentive service, remembering name/order) (Exhibit 3). As a customer. Training the current staff to be friendlier and more attentive would be much less expensive than investing $MOM on additional staff, and will directly attribute to an increase in customer satisfaction. Furthermore, incentives could be given to stores with the highest customer satisfaction scores.
Overall, by implementing an enhanced C.
V. program and refining employee training on the “soft skills” required to increase customer satisfaction, Cataracts should be able to improve customer loyalty and profitability. At this time, we do not suggest investing $MOM for additional labor. Updating the C.V. program and increasing training should provide a more affordable solution to improving customer satisfaction and a greater return on investment.
