The Cost of Customer Loyalty
Caffeine is the fuel of choice for most entrepreneurs and business owners. I can boil water but don't even make toast well, so I prefer to go out for coffee and tea to keep my engine running at maximum capacity. My favorite spot to recharge is an independent café in a low-key area of town. Sometimes I get a "go cup" as we say in New Orleans where I grew up, and sometimes I grab a table or booth for a meeting or to work on a project if I feel inspired.
This café opened the week I came to Boston almost eight years ago for a housing searc trip. I stumbled in, not realizing they had just moved into the neighborhood as well. I immediately liked the place and knew it'd be one of my favorite spots to frequent.
The café found a loyal following of eclectic coffee lovers and seemed to appeal to various types of customers for a variety of reasons. It was so successful, the owners took over the adjacent space and doubled the size a couple of years ago. The café was able to grow happily while maintaining its independent, hip, non-Starbucks feel.
Business was great until they made a few strategic decisions that started to alienate their core customers. It wasn't any one thing, but a series of small things impacted every key constituency in a negative way. It's funny how people have found ways to bring up their frustrations with the café now in all sorts of situations.
One regular was attending a dinner party I was invited to and announced to the table, as coffee was being served, how disappointed he was that his favorite coffee shop just raised their prices. He said they were already at the high end, but now the management seemed to be almost bothered by their customers, and this new attitude caused him to find a new place for his morning stop.
Another daily drinker as we used to say at Coca-Cola also asked me if I'd noticed the price hike. Then, she added that when she asked for an extra spoonful of froth on her coffee drink, they charged her an additional fee, which they'd never done in the past.
I've also noticed seats are easier to come by and there are definitely fewer students there lately, perhaps because they discontinued their loyalty cards when they raised their prices. You used to get your 10th cup free.
Recently, they put up a sign saying they were making a donation to a charity with a portion of their revenue. One customer snarled as he paid for his drink that he prefers to give to nonprofits of his choice. If that's why they raised their prices, he'd like a refund.
What this situation made me realize is there really are no small decisions when it comes to your business. Even with a great brand that has a strong following, you have to constantly monitor customer satisfaction because loyalty can't be taken for granted. What could this coffee shop have done differently, even if we assume they needed to raise their prices?
Ask your best customers for their input. No one wants to pay more for products or services they buy regularly, but you can address that if you get feedback upfront. It doesn't appear this café did any sort of focus groups or used a customer advisory board at all. It's amazing what you can learn by simply talking to your customers, explaining the situation, then problem solving together on creative ways to address the situation.
Test each variable separately so you know which levers have the most impact and why. Most people don't like to change their habits in any way. If you alter a lot of things simultaneously, it's hard to know which changes are good or helpful and which ones your customers are resisting or avoiding. Was it the price increase, the elimination of the loyalty card, the donation to the charity, or the fact that another coffee shop in the neighborhood closed around the same time and a different, less-hip clientele started to hang out there? Or was it something else that started to negatively impact the customer experience? It'll be hard to untangle at this point.
Admit when you make a mistake. Were the employees even involved in the decision to raise prices? Maybe their bitter attitude is a reflection of the fact that they don't like it either and all the customers are taking it out on them, not the owners. I'm not suggesting you can never raise your prices. You can and should always charge a fair price for your product or service. Make sure you know what the competitive landscape looks like, though. Maybe it's costs you should be driving out of your system instead of raising your fees. You may end up pricing yourself out of the market altogether, and no matter what category you compete in, your customer does have options.
Remember, you're only in business because customers are willing and able to pay for what you're selling. Without them, you'll need to find something else to do. So look, listen and learn, because it's a lot more expensive to get them to come back once you've lost them. A new café is opening down the street, and I'm guessing I'll see many familiar faces there when I check it out. It sure beats learning how to cook.
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