How many loyal, card-carrying customers do you really have?

Aug. 31, 2012 | by Jitendra Gupta

I've seen a lot of people on Facebook lately posting statements, "You'll never hear anyone say...."

I'd like to add this one to that list: ""You'll never hear anyone say, I love getting flyers in the mail, on my stoop, on my windshield and even while walking the street."

Decades ago, it was predicted ours would become a paperless society. But if you ask trash collectors, they'll confirm that's not happening.

Despite the explosion in electronic communication options, restaurants continue printing menu and coupon flyers and delivering them to prospective customers. Not only do they hope such recipients will act on them, they assume they might even share that news with their friends.

Not only are such communiqués costly compared to their analogous electronic forms—web pages, emails and text messages—unless that flyer contains a deal requiring a customer to present the actual paper to receive the bargain, no one knows whether the effort was even effective.

Many restaurant customer loyalty programs are plagued by similar uncertainties. Paper punch cards still make up a significant portion of the means by which restaurateurs reward customer patronage. And while mag-stripe swipe cards provide significantly better tracking of customer behavior, like their paper predecessors, they, too, have drawbacks. Overall ...

Be they paper or plastic, loyalty cards are easily lost. It's estimated that for every 100 loyalty cards given out, 91 percent are lost. Plus, patrons don't want to carry multiple cards anyway.

If they're lost, it's difficult for customers to know how close they are to redeeming a reward. Without a paper card, some programs set the customer back to zero, while to the credit of web-based, mag-stripe card programs, customers and operators can track progress through the Internet. (Even then, those added steps are viewed by some as cumbersome. Indeed, customers prefer things be easy.)

Neither type of card capitalizes on the social aspect of dining out, that natural human desire to say to others, "That place is great! You should eat here!" They don't lead people to engage even their friends. Just as people never share a menu flyer with another, punch card or mag-stripe users largely keep their experiences to themselves.

Why? Because they're rewarded for coming back—not for telling others why they returned. That leaves restaurant operators wondering, "Are my customers returning because they get a freebie, or because they really like my place? And would they come back if I had no loyalty program at all?"

Similar doubts have been heard from restaurateurs who've used programs such as Groupon and Living Social. Steep discounts offered by restaurants that use them do generate product trial (sometimes more than the operation can handle), but at what cost and to what gain?

When the traffic surge from the deal subsides and sales return to normal, many operators estimate most of those responding to their offers came only for the low-priced deal, not because of their curiosity about the restaurant.

And even when some customers' experience at those places are good enough to bring them back, how does the restaurant owner ever know they actually do return or why? Effectiveness of those programs is difficult, if not impossible, to pinpoint.

To be fair, when any loyalty or incentive program works—no matter how rudimentary—all transaction increases are positive. But lasting and long-term revenue increases that actually benefit margins come from an upsurge in the number of actual customers coming through the doors. The best way to push that number northward is to get current customers telling potential new customers about their experiences—yep, that old, reliable word-of-mouth advertising.

Enough discussion of programs that don't work: With my next post, we will discuss modern methods, such as mobile technology, that are proving highly effective. Stay tuned.

Topics: Marketing / Branding / Promotion , Online / Mobile / Social , Operations Management

Jitendra Gupta / Jitendra Gupta is a Co-Founder and Head of Product at Punchh, a mobile engagement and actionable insights platform that includes branded mobile apps for campaigns, games, loyalty, online ordering, payments, referrals, reviews, gift cards, surveys, and integrates with social networks and operators’ POS systems to gather 360° customer insights. Punchh helps restaurants increase same store sales and profitability by driving repeat visits, word of mouth, new customer referrals, and higher returns from marketing campaigns.
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