Restaurant loyalty programs pay off in surprising ways

Aug. 30, 2013 | by Duessa Holscher
Restaurant loyalty programs pay off in surprising ways

Restaurants everywhere are rushing to implement customer loyalty programs. We're all familiar with the concept — the "Buy 10 Get 1 Free" punch card is nothing new. What is new, now, is the high tech approach, the more sophisticated methods of tracking customer behavior, and the combination of loyalty with marketing automation programs to dramatically increase customer frequency.

But restaurant owners wonder — do these high tech programs really work? Are they proven to pay off? I've worked with many independent restaurants and chains implementing a combination loyalty & marketing automation solution. We've found significant results that really pay off.

Turning new customers into regulars

It's the magic elixer of success for any restaurant — the ability to take a first-time customer and turn them into a regular. You've got to deliver on the service, the food, the value and the experience overall. And you've got to do something that's even harder — change a customer's habits. So we wondered, would the loyalty program help turn new customers into regulars?

We studied a 9-store pizza chain that serves a lot of slices for lunch as well as full delivery of pies. Because we have records on delivery customers, we can analyze the behavior differences between those who joined the loyalty program and those who did not. What we found was, of all the first-time customers who tried the restaurant and joined the loyalty program (receiving a welcome message with the offer), 27 percent were back again within a short time period, and 14 percent ordered at least two more times within the 3-month study period. But for those first time customers who did NOT join the loyalty program, only 12 percent returned once and only 3 percent returned two or more times. Active communication by the restaurant via the rewards system appears to have had significant impact on turning these new customers into returning customers.

In another example of a 5-store chain, new customers who joined the loyalty program were 3.4 times more likely to order a second time (41 percent of them did, vs. just 12 percent of non-loyalty customers) and were five times more like to order three or more times (22 vs. 4 percent).

Increasing customer visit frequency

You may spend a lot of marketing dollars to attract new customers, but it's a universal marketing truth that it's much easier and more profitable to get your existing customers to just spend more. Can the loyalty program pay off in this important area? We compared loyalty members to non-loyalty members, again looking at delivery orders only so we could track customer-specific behavior. We found that loyalty members ordered, on average, spent 0.49 more in a three-month period than did non-members. Over a year, that's two extra orders per member. Multiply that by 1,500 members and a $25 ticket average and you've got $75,000 in ROI to play with!

Increasing ticket averages

Do loyalty members spend more than non-members? Or do all those rewards and offers cost me money? We set out to find out. In one 4-store study, we found that across all order types (dine in, delivery, to go and pick up) the loyalty members spent an average of $2.14 more per transaction, even after accounting for all the discounts or rewards they may have applied to the order. In a second study, we found that even with an aggressive welcome offer worth $9, loyalty members had a ticket average of just 77 cents less than non-members. With a small adjustment to the offer value these members would also be spending more.

Enrolling more customers

Many restaurants have been trying to capture customer data — e-mail addresses and the like — so they can communicate with customers. Most websites include an online sign up form for e-mails, and this is often promoted in-store as well. We recently converted a restaurant client from an e-mail only program, with online sign up, to our integrated loyalty solution. We found that monthly enrollments quadrupled. That's right, 4 times as many customers signed up when asked by the cashier at the point-of-sale, with the added incentive of rewards. Increased customer data means more opportunities to promote your brand. And these days, an active, sizable customer list with identifiable customer demographics adds to a restaurant's value.

It's common sense — getting to know your customers, nurturing them, communicating with them, keeping in touch — it's bound to pay off, right? Turns out we have solid evidence that it does pay off, with increased conversions, increased frequency and increased ticket averages.

Topics: Loyalty Programs, Marketing / Branding / Promotion, Systems / Technology, Trends / Statistics

Duessa Holscher
I’ve been passionate about pizza technology since my start in 1994. Since then I’ve worked in marketing and development for several pizza tech firms, founded FireFly Technologies, and now work as Marketing Director at Granbury Restaurant Solutions. wwwView Duessa Holscher's profile on LinkedIn

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