Implementing an Effective Restaurant Loyalty Rewards Program
The key to a successful restaurant loyalty program depends on understanding how it really works and what it can and cannot do.
The purpose of a restaurant loyalty program is to increase order frequency and spending from your most loyal customers. The first thing to realize is that unless you are a fast food franchise or other discount eatery, your most loyal customers return for your food, not your prices. Price driven customers will visit you only when they can get a deal. A loyalty program is not going to entice cheapskates away from low end eateries. Instead, it should make loyal customers feel special. This in turn will encourage them to come back more often and to spend more at your restaurant during each visit.
Who Are Your Most Loyal Customers?
Most restaurant owners believe that about 60% of their customers are frequent buyers, but an analysis of over a million credit card transactions show that about 15 percent of your customers purchase from you frequently. On the other hand, the small number of loyal customers account for over 33% of most restaurants’’ revenues. This small group is who your loyalty program should target. The goal is to encourage this small loyal following to come back more often and spend more money when they do.
How To Achieve it?
Your loyalty program needs to meet some specific, but basic conditions to achieve maximum efficiency. Luckily, Two professors, Xavier Dreze and Joseph Nunes of the Wharton School of Marketing have conducted extensive research on loyalty programs. Their findings are very instructive on how to structure a loyalty program.
One of Dreze’s and Nunes’ more significant findings shows that as people make progress towards a loyalty program goal, their efforts to achieve the goal increase. That is, the closer customers are to receiving their loyalty reward, the more frequently they purchase from the restaurant. This is a key driver behind loyalty programs.
PRACTICE TIP: It is critical that customers know their progress towards reaching the program goal. With an online loyalty program this is done automatically. Every time a customer signs in to their account, they see their loyalty program points. With paper or card based programs, they should see a punch card or some tangible evidence of their progress.
Dreze and Nunes also discovered that when progress is measured by points rather than total dollars spent, customers will try harder to reach the program goal.
PRACTICE TIP: Assign points to customer activities, such as dollars spent or visits within a month and measure the customer’s progress in points, not dollars.
Finally, Dreze and Nunes learned that customers are more likely to participate actively in the loyalty program if they are given a reason for doing so, even if it is as basic as “Thank you for utilizing our online ordering system. As our way of saying thank you, we invite you to take part in our VIP reward points program.”
PRACTICE TIP: Connect or tie membership in your loyalty program with some activity or behavior by the customer.
How to Reward
The biggest mistake a restaurant owner can make when selecting a loyalty reward is to offer some sort of discount. Remember, your most loyal customers are there for the food, so reward them with something tasty, imaginative and above all, edible. Loyal customers don’t care about discounts, they care about food. You have plenty of ways to deal with bargain hunters, but your loyalty program should not be one of them.
Ideally, you want to have a number of enticing and delectable rewards to please a variety of palates. Dreze and Nunes found that the value of the reward is not a primary factor. It is far more important that the reward be intrinsically desirable to the customer. Get creative with your rewards. For example, offer sample combos of some of your more popular entrees. Not only does this seem special to the customer, but may lead to future purchases of the item since it lets customers try before they buy.
PRACTICE TIP: Reward with food items, not discounts, and give your reward members choices on what they can redeem with their points.
BONUS PRACTICE TIP: Use your loyalty reward program to maximize your restaurant’s occupancy throughout the day and week. If Tuesdays are slow, consider awarding double points for Tuesday visits. If you are slow from 4-6, Mondays through Wednesdays, consider awarding double points then.
BONUS PRACTICE TIP #2: Make sure you get an email address from all your loyalty rewards members and add them to your email list for weekly or monthly specials, birthday offers, and other special events.
Putting It All Together
An effective restaurant loyalty program achieves its goal by:
• inviting each customer to participate
• associating membership in the loyalty program with some behavior of the customer
• providing a selection of dining rewards (not discounts) for the participants to choose from
• measuring the participant’s progress in points, not dollars, and
• keeping each participant advised of his or her progress towards award level.
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