Loyal customers spend more (a recent study from the Center for Retail Management found that 12%-15% of a business’ most loyal customers contribute 55%-70% of sales, consistent with similar research) and they cost less than finding new ones. In addition, loyal customers are highly likely to recommend a restaurant to others – a recent study by Granbury Restaurant Solutions found that 82% of restaurant loyalty program members referred at least one person, while 42% referred four or more. But recent National Restaurant Association data reveals that 70% of fullservice and 75% of limited service operators find customer loyalty more difficult to maintain now, perhaps accounting for the approximately 30% of restaurant operators offering loyalty programs. The strategy appears promising – more than half (57%) of adults surveyed by the NRA said they’d be more likely to patronize restaurants offering customer loyalty and reward programs – but these programs often don’t look beyond incenting the next transaction and typically aren’t used to maximum advantage by restaurants.
“The first question to ask is what you want from a program,” suggests Martha Rogers, Ph.D., founding partner, Peppers & Rogers Group, a customer-oriented management consulting firm, and co-author of Extreme Trust: Honesty as a Competitive Advantage. “Is a loyalty program something you feel you must do because everyone seems to?” According to Martha, it’s a valid rationale to offer a program in order to be included in what she calls “the consideration set,” the group of restaurants (or airlines, supermarkets, etc.) that consumers are motivated to consider first – usually because of some type of payback. The problem, she explains, is that most loyalty programs stop there and become like any other kind of discounting. “We think of the common ‘buy ten, get one free’ prototypes as ‘faux-loyalty’ programs – just forms of bribes – and they effectively decrease profits by 10%. You need to make it crazy for customers to go anywhere else, so instead of thinking ‘How can I join the legions of those offering similar programs?’ restaurateurs should be asking themselves ‘How can I reward customers to give me access to information and then use it to create and reward true loyalty?’” Brad Rukstales, president/founder, CAC Group, a customer marketing solutions firm, agrees. “Strategic organizations would not start out saying ‘I want a loyalty program,’ but rather ‘I want to identify opportunities to increase engagement with my customers.’ Once you have that mindset, then you can add a program.”
The key, advises Martha, is to determine what your customers really want. “It’s this insight and the use of it – doing things for them that your less knowledgeable competitors wouldn’t know to do – that makes customers truly loyal.” To that end, technologies to help gather and analyze data about customers and their transactions are enormously helpful. In fact, Martha feels that much of the value of a loyalty program is gathering insights about those customers without having to ask. “Don’t make customers work to tell you what they want,” she cautions. “Assume they have other things to do than to make your business succeed.” That said, understanding customers’ preferences is within the reach of any restaurant. “There are so many ways you can learn what customers enjoy. Pay attention and be creative,” advises Martha. “If you see that a regular always wants a booth, set one aside when he or she makes a reservation. If you observe that someone always gets appetizers and not desserts, don’t send him or her an email about desserts – send an invitation to try a new appetizer. We need to see businesses like restaurants only giving rewards that are relevant to individual customers.” Brad adds, “Whether part of a loyalty program or not, what’s required is making the commitment to track loyal customers’ preferences, even if it means writing them down on an index card. Technology makes it easier but you have to be customer-centric in the first place – a loyalty program isn’t going to compensate if you’re not.” Brad reminds restaurateurs that the value of customer-centric insights extends beyond loyalty programs. The goal, he says, is the ability to deploy customized communications to any customer. “It could be in the form of a phone call, direct mail, a text, or an email to customers you haven’t seen in awhile saying you miss them and asking them to come in for a drink or a dish they’d enjoyed in the past.” Gathering information about customers and then using it to serve and reward them as no one else can is the principle behind a growing and important trend. Instead of a one-size-fits-all loyalty strategy, which offers the same rewards for everyone, more companies understand the benefit of delivering what’s meaningful to each customer. Martha’s advice: “Stop thinking about what loyalty programs can do for you, and start thinking about what’s in it for your customers.”