Points vs. cash: A comparative analysis of loyalty reward structures and customer retention in independent coffee retail

The issue of retaining customers has become a burning issue to the independent coffee retailers in the highly competitive cities where switching is cheap and differentiation is minimal. Loyalty programs are also a popular strategic tactic to promote repeat business, but the effectiveness of varying reward designs has not been examined in detail in small service companies. This research paper looks at the relative effectiveness of the points based and cashback loyalty programs in influencing customer retention behaviour of independent coffee shops. The study examines frequency of visit, reward redemption behaviour, and customer engagement patterns using the transactional data obtained on eight cafes and about 1,200 reward program customers in the six months period. The results show that points-based loyalty programs result in a higher frequency of repeating visitors, the post-reward retention rate, and a reduced switching tendencies than cashback reward systems. The behavioural motivation of points-based structures is achieved by increasing the progress and encouraging benefits, but in cashback incentives, the behavioural motivation is a short-term monetary discount. Findings indicate that incremental rewards and experience-based loyalty efforts are more efficient in entrenching the habitual consumption and long term customer relationship within an independent coffee retail setting. The research adds to the existing literature on the research of the loyalty program design in small service companies and offers valuable practical information to the cafe owners in search of sustainable customer retention strategies.