Restaurant Loyalty Programs – A Comprehensive Guide

Who doesn’t like rewards? It’s what prompts people to fixate on earning points. As kids, we would be rewarded with a ‘star’ sticker or a ‘ribbon’ for participating in class discussion or good hand-writing. Not much changes as we grow older. The papercut stars get transformed to frequent flyer miles, hotel reward points, free meals at your favorite restaurant, etc (even if it means paying more)

Rewards and Gifts are been central to human motivation. Intangible rewards/upgrades or tangible cashback; a customer’s purchasing behavior gets influenced when they enroll in any kind of loyalty program. The global Loyalty Program market was valued at $172.5 billion in 2018. Having said that, although loyalty programs are not new to the hospitality business, many restaurants are found to neglect or are unable to understand its importance.

It is a full-fledged system dedicated to streamlining customer purchases into unique reward-based system. But more importantly its an elaborate business strategy. Loyalty Program thrives on customer data-base and their ordering patterns. A vivid picture of their food habits, the trends they are most attracted to, the preferred time of visit at the restaurant, etc. helps in reaching out to the best-valued customers.

What aim do loyalty programs achieve?

To understand how loyalty programs work and benefit your restaurant and brand, it is important to know the intent of such a service. A loyalty program works on two principles – Reward and Reinforcement.

An experience that is followed by pleasant consequences is likely to be repeated, and vice-versa. So when you reward consumers in exchange for desired actions, you can influence them to continue engaging in these actions. The main objective is to retain customers. The rise in your restaurant’s revenue directly depends on your customer base and how to retain it. A loyalty program gives your customers a reason to return.

Loyalty programs are also aimed to add value to your existing brand. Studies show that loyal customers are likely to spend more than other customers. For example – Suppose, you are giving 20% cashback on order value above 500 Rs then this would give a reason for the customer to spend more than 500 in order to get cashback.

In what ways does a loyalty program benefit a restaurant? 

As more restaurants are springing up it is evident that customers have more chances to choose where to dine. With high customer acquisition cost, restaurants are compelled to re-orient their marketing strategies to keep existing customers while attracting new ones.

Analysts and academic researchers assert that it costs as much more to conduct business with new customers than existing ones. Doing business with existing customers Reduces marketing costs, decreases price sensitivity and strengthens partnership activities. Loyal customers are less likely to switch and make more purchases than unfaithful ones.

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Profitability increases when you are able to retain your customers. Retention makes your customer base strong. A good loyalty program will retain the customers and bring them back to your restaurant more often. A well-designed program serves as a competitive advantage for a firm, which assists companies to achieve sales targets. It can be argued that loyalty program is a valuable technique in saturated and competitive markets and it is a determinant of customer retention and higher purchase. Market analysis also suggests that the probability of selling to an existing customer is 60-70%, and for the new one, it’s somewhere between 5 to 20%.

According to Bain & Company, a 5% increase in customer retention can increase profitability by 75%.

Many service industries, specifically restaurants have come to realize that, to lose a customer means losing the entire stream of purchases that the customer would have made over his lifetime. While the benefits vary among each business, those who roll them out with a proper amount of strategic planning or foresight will reap the same benefits. The greatest benefit of a loyalty program is to learn more about diners and their choices when it comes to food and service. Loyalty Programs in  a way boost the ‘hospitality’ factor of your brand. 

According to a 2016 report, 66% of consumers modify the amount they spend to maximize points — buying more and spending more than non-loyalty members (and resulting in a 5% – 10% revenue increase, on average). These programs focus on strengthening the bond with repeat customers in order to increase revenue and improve a restaurants’ reputation through word-of-mouth or using a social pattern via Facebook and Instagram.

Thus designing attractive and valuable programs together with distinctive core products of restaurants can influence customer buying behavior. Loyal customers are less likely to switch and make more purchases than unfaithful ones. 

An advanced software that analyses customers’ purchasing patterns is a must to maintain a strong and successful loyalty program.

Types of Loyalty Programs

Standard Shopping Points

You can create restaurant Loyalty Programs that accumulate points in the customer’s account based on the amount they spend at your restaurant. They can collect a point on a certain amount spent. For instance, 1 point can be collected on every Rs 100 spent. Amount based restaurant Loyalty Programs work best in the case of fine-dine restaurants and bars where the average spend of customers is high.

Special Rewards

Your loyalty program can also have special rewards on special days of the year. For instance, you could treat your customers with a discounted meal on their birthday or anniversary. Restaurants serve complimentary dishes to their premium customers. Visit based restaurant Loyalty Programs work best in the case of quick-service restaurants and cafes where the frequency of people visiting your outlet is higher, but the average spend is less. You can offer a free drink or a complimentary item on every 8th customer visit. This propels your customers to come back to get that free item.

Prepaid Loyalty

The ‘Amazon Prime’ service saw massive participation through-out India. Not just that, but competing e-commerce companies were preferred less after customers enrolled for a prepaid loyalty program like this one. Market research shows that a prepaid deposit as low as Rs. 500 on loyalty programs will tie the customer to your brand. When a person enrolls in any prepaid loyalty program he/she is not only a member or a participant but a subscriber.

How to Measure the Success of your Loyalty Program?

Measuring the impact of your loyalty program is essential to understand your Return on Investment, or if you need to make tweaks to increase loyalty.  To measure its success and to gauge its future viability, you should be looking at the following:

Customer Retention Rate

The true success of a restaurant Loyalty Program is measured not by the rewards earned, but by the cash points burnt. Compare numbers like the sales over time of non-members and members and rate of return for each group to watch for a developing trend in the right direction.

Negative Churn

Churn is the rate at which guests leave your restaurant, so to create a negative churn, set up markers to measure when guests become more invested in your restaurant. Tracking when loyalty members are returning more often, spending more in a single visit, participating in more events or higher-priced services and products are all ways to assess whether the program is working.

Net Promoter Score

This score is calculated by subtracting the percentage of guests that would not recommend your restaurant from the percentage of those who would. Using surveys is a clear cut way to do the math here, but there are other less formal ways you can use the same principle to get helpful data. You could look at the percentage of positive vs. negative social media comments, for example. Even Zomato reviews could be a way to assess a “score.”

Customer Effort Score

This is how much effort a guest has to spend to have a positive experience or resolve a negative one, and this just might impact loyalty more than the “delight effect.” An efficient loyalty program that doesn’t rely on coupons or additional cards is a great way to streamline the effort your customers will have put forth to have a positive, rewarding experience.

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With help from your “negative churn” and “retention” data, you will want to consider guest’ activities within comparable periods of time. For example, if you are looking at total visits to your restaurant for a year-long period, comparing “months 1 through 6” to “months 7 through 12” should display an increase in loyalty program members in the latter months. It’s helpful to take note of trends and adjust your marketing if you don’t see positive results!

Alongside its positive outreach, loyalty programs can go horribly wrong if the software and marketing strategy is not in place. A market research by KPMG points out a few limitations as well as winning points for a loyalty program:

While watching all of this develop before your eyes sound great, measuring correlations between your new loyalty program, your marketing efforts and the results are crucial to making that happen. Setting benchmarks and actionable goals and following through with them is the best way to keep those guests coming back.

An advanced software that analyses customers’ purchasing patterns is a must to maintain a strong and successful loyalty program. This might take away a lot of your time and energy from various other priorities you have as an operator.

CASE-STUDIES: 

With 12 million members in the U.S. alone, the Starbucks loyalty program is a well-known success story. The coffee giant launched the “My Starbucks Rewards Loyalty Program” in 2010. It’s evolved in the years since most notably to include a digital ordering component known as Mobile Order & Pay (offered only to loyalty members).

In 2016, it was reported that the company’s loyalty program held more money than some banks, with $1.2 billion in customer funds loaded onto plastic and mobile Starbucks cards as of the first quarter of the year. According to company filings, that number is now over $2 billion and has more than doubled in just two years (data shows the chain saw $621 million in funds loaded to the program in 2014).

Subway’s loyalty program has evolved considerably over the years. The Sub card eventually became a Sub card app, complete with geotargeted promotions as well as custom sandwich-builder and calorie calculator features. In 2015, the sandwich chain began testing a link between its loyalty program and access to in-store Wi-Fi, offering customers in some locations in Canada, a free sandwich if they logged into the in-store Wi-Fi network.

The DD Perks Rewards Program was launched in January 2014 as a way to reward guests with points toward free beverages for every visit they make. Three years later, the program now touts more than six million members nationwide. The use of the rewards program, and the chain’s continued emphasis on digital, appears to be leading to larger ticket sizes. The customers enrolled in their loyalty program get the ‘on-the-go ordering’ facility.

Restaurant Loyalty Programs Offer the Most Value to Those Who Think Strategically

As restaurants look to gain a competitive advantage, loyalty programs will continue to greatly expand. But chains can’t expect to launch a loyalty program and immediately see their revenue increase. 

Those who undertake the analysis required to launch such an important project will reap the largest rewards. The secret sauce isn’t just the increasing sales in the short-term, but in better understanding what a chain’s ideal customer looks like: when they come in, what they buy, and how much they spend.

Designing a loyalty program is one challenge, but managing it and ensuring smooth transactions of reward points is an entirely different ball-game. PetPooja’s SMS service can help optimize your loyalty program. You can choose to craft your own loyalty service with our partners Reelo, Mobicall, Mobiquest, #loyalty & Bingage.

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