The Price of Loyalty: What Pret A Manger Can Learn From Starbucks, Caribou

For Pret A Manger, the words “no charge” may translate to a big data gap.

The London-based coffee and sandwich chain, which also operates in the U.S., is replacing points with gratis, but will that translate to grateful? Its strategy – an alternative to a formalized loyalty program – is to let employees give away free food and drinks at their discretion.

As Pret A Manger CEO Clive Schlee put it to the London Evening Standard: “We looked at loyalty cards but we didn’t want to spend all that money building up some complicated Clubcard-style analysis.”

He has a point in that many loyalty programs are structured in a way that their value among members may be diminishing. However, while Pret A Manger’s freestyle approach may feel more loose and fun, it does not embody the characteristics that would likely build the emotional and behavioral loyalty that great global brands make their goal. One key factor is that employee-decided giveaways prevent Pret A Manger from gathering data insights and, crucially, do not ensure those who are actually loyal will be rewarded.

Loyalty marketers may want to monitor Pret’s strategy as a competitive concern, but the key to success – regardless of approach – is delivering an experience that sets the brand apart. Two good contrasting examples are the My Starbucks Rewards program, which just surpassed 10 million members, and the newer Caribou Perks, which is structured on a similar surprise-and-delight theme as Pret A Manger, but uses customer data as a backbone to understanding its customers.

In short, each program demonstrates the effectiveness of responsible data use. Let’s review.

Starbucks’ journey  

Starbucks took the grande, venti, trenta approach to growing its rewards program. It originated in 2001 as a small, simple payment-card system that members could use like a debit card. A year later Starbucks added an automatic reload feature so holders could replenish their accounts online.

Not until 2008, when CEO Howard Schultz returned to the helm after serving eight years as chairman, did Starbucks introduce rewards. The concept was part of a “transformation agenda” that also included a focus on Starbucks’ heritage, innovation and the customer experience.

The early rewards program did not offer levels or tiers; members registered a card and earned free milk, syrups, beverages and refills. After a year or so of testing (a fee-based gold card came and went, while the mobile payment app came and flourished), Starbucks in 2010 introduced My Starbucks Rewards, a three-tiered program (welcome, green and gold levels) that continues to operate today.

Key changes continue, all apparently geared to lift sales where the data shows potential. In 2012, Starbucks added the option for members to select food as their rewards. It also made it easier to earn free reward cards – with 12 stars rather than 15. That same year Starbucks began testing digital rewards, which continue today. In 2015, Starbucks is rolling out a mobile order-and-pay program.

True, this formalized program is likely costly, and complicated, but it directly correlates with topline performance, Schultz told investors. More than half of My Starbucks’ 10.3 million members are higher-spending gold members, more than 16 million customers use its mobile payment app and in the second quarter alone all members loaded $1.1 billion on their cards.

“My Starbucks Rewards will continue to be among our most important business drivers as new members contribute not only to short-term increases in revenue and profit but also to long-term loyalty for many years to come,” Shultz said.

Caribou steps up

Also seeking longer-term loyalty is Caribou Coffee. Though much newer with a January 2014 launch date, its Perks program has covered significant ground by giving unexpected rewards, from beverage size upgrades to pastries. Members receive text messages or emails when rewards are given, depending on preference, and those rewards are typically good for a week.

In April, Caribou launched a pay-by-phone app that enables members to preload their accounts and offers personalized rewards based on member preferences and behaviors.

The Perks model resembles Pret A Manger’s strategy of unexpectedly giving away items for free, which – granted – ensures the reward is exactly what the customer wants. What distinguishes Caribou Perks from Pret A Manger is its data assures that loyal customers will indeed be recognized in the first place, regardless of the locations or times they visit.

Which leads to an important feature of a formalized reward program: The data collected can help employees better recognize brand-loving customers as it keeps track of visits regardless of where and when they occur (for many merchants, this extends to online purchases). At Pret A Manger, the customer may hit two locations a day, but the workers at each store register that guest only half the total time; even less often if their shifts vary. A deeply committed customer may be seen as an occasional guest.

Further, Pret A Manger’s freebies are arbitrary, relying on the whims of employees. I give its staff the benefit of the doubt as being responsible and committed to the brand, but they are also human. A loyal guest may be overlooked in favor of a less loyal, but more attractive one.

So while Pret customers wait for their lucky moments, Caribou Perks members are guaranteed rewards. And since these rewards come with expiration dates, they are likely to get customers back into the stores soon.

This kind of data delivery may come with a charge, but it is more likely to translate into topline sales that help build the business and in turn lend credibility to the value of a quantifiable reward program.

This article originally appeared on Forbes.com, where Bryan serves as a retail contributor. You can view the original story here.