In February 2020, Panera Bread announced the Unlimited Sip Club and rocked the coffee world. For just $8.99 a month, members could get unlimited refills of their favorite coffee or hot tea at any Panera location. With the average American consumer spending more than $2,000 a year on coffee, this sounded like an incredible deal for coffee drinkers — begging the question, how could Panera possibly justify such generosity?
Your Loyalty Program Might Be Losing You Money
From Amazon Prime to Panera Bread’s Unlimited Sip Club, loyalty programs have become commonplace in a wide variety of industries. However, despite their popularity, it’s not always clear whether these programs are actually profitable. The authors analyzed data from 24,000 customers at a large Asian retailer to explore the various factors that can drive a program’s profitability, and identified three takeaways to help managers ensure their subscription programs are a net positive: They recommend that managers should go beyond averages and analyze trends on an individual level, measure the underlying factors that drive changes in revenues, and remember to account for increased costs associated with program benefits. Ultimately, they find that loyalty programs can be quite effective — but only if managers carefully track revenues and costs for different customer segments, and experiment and adapt accordingly.