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The first option for retention of the customer base is the introduction of coupons and daily deals. This strategy is primarily aimed at price-conscious consumers. The coupons will be distributed directly in the coffee shop. Such a strategy is expected to be highly successful for two reasons. First, the current research indicates that the number of price-conscious consumers is currently as high as 80% of the audience, and the trend is expected to continue (Anderson, 2014). Second, Starbucks, Café Latte Cinos main competitor, is notorious for overpriced offerings (Timmerman, 2014). Therefore it would be reasonable to appeal to the customers seeking cheaper alternatives and decrease the number of those who would be willing to switch once the new Starbucks opens.
The coupons can be generated by the software tool, which would decrease cost. The daily deal can be advertised directly on-site using relevant materials (e.g. a chalkboard), which would communicate the dynamic nature of deals and encourage customers to diversify their choice of beverages. Depending on the popularity of the campaign and the predominant customer behavior, the associated costs can be range from 10% of revenues under the optimistic scenario to 30% under the pessimistic one, plus the cost of software and equipment ($300 to $1200). The increase in sales can range from the negative number in case the audience will be unaffected to a 25% increase in four months. It should be mentioned that the most likely outcome is around 0 to 5 percent due to an established customer base.
The second option would be the introduction of loyalty cards. This option is aimed primarily at repeat customers who buy coffee consistently and visit more than once a day. The data shows that repeated customers are generating a significant portion of the companys profits (up to 40%) and the likelihood of repeated use increases with each visit (McEachern, 2015). Thus, the strategy will not only ensure customer retention on the initial stage but will result in increased revenues in the long term. However, the loyalty cards are more costly to implement since they require the manufacturing of the physical media (the cards), purchase of equipment (card reading and processing software), and employee training. Therefore, the initial cost of such an option under the most pessimistic scenario would be around $ 14,000, and under the most optimistic situation, it could be cut down to $4,500. The sales in the long term can see an increase from 10% to 50% in the long run, although the most likely increase is estimated at 20%. The effect is expected in at least six months.
Finally, the strategy might promote the idea of supporting local business. This option would target socially conscious goodwill consumers. This strategy is especially relevant considering the recent trend of distrust of international corporations and their adverse effect on the economic independence of small businesses (Timmerman, 2014). Nevertheless, it should be pointed out that this option poses the most barriers to successful implementation, including the lack of effective methods and the time and resources needed to definitively communicate the idea.
The option would require the redesign of the coffee shop interior and inventory, the creation of new promotional material emphasizing the local nature of the business and community benefits of supporting it, and, preferably, establishing partnerships that would extend the community involvement beyond the scope of sales and taxation. Therefore, under the most pessimistic estimations, the cost of this option can reach $30,000 or can be limited to $5,000 in the optimistic situation with the most likely cost of around $18,000. The pessimistic scenario would result in no change in sales. The optimistic situation could produce up to a 60% increase in customer base. The most likely outcome is estimated at a 20% increase, although this result can improve over time.
References
Anderson, B. (2014). Up to 80% of consumers are considered price conscious.
McEachern, A. (2015). Repeat customers are profitable and we can prove it!
Timmerman, K. (2014). Where am I eating?: An adventure through the global food economy with discussion questions and a guide to going glocal . Hoboken, NJ: John Wiley & Sons.
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