Restaurant Loyalty: 1 Best Guest = 9 Average Guests

Best-Average_GuestsLoyal customers are extremely profitable for restaurants. In fact, a restaurant’s “best guest” can represent the same revenue as nine “average guests.”

Here is an example how a company with two restaurant chains (representing 285 stores) realized the importance of customer loyalty and launched a loyalty program that was quite successful.

CASE STUDY: Restaurant Chain’s Loyalty Program Drives Incremental Visits and Revenue

With free standing inserts (FSIs) as its primary marketing activity, the restaurant chain realized that implementing a loyalty rewards program would be a great way to understand who its customers were and incent them to visit its restaurants more frequently and spend more money. The key goals of the rewards program were to: increase sales and frequency, collect customer data to make better decisions and reduce its dependence on FSIs.

Objectives

The main purpose of the chain’s CRM/Loyalty solution was not to launch a points/rewards/plastic card program to merely offer its customers discounts. The rewards were just a means to an end. The main objective was to discover who their customers are, track their behavior, understand their preferences, cater to those preferences and develop ongoing two-way communication with its customers.

The goal was to build stronger relationships with its customers to increase frequency, per-check revenue, marketing efficiency and ultimately a competitive advantage.

Approach

When considering launching the loyalty rewards program, the chain identified four key success factors:

  1. Make it simple for guests to understand.
  2. Ensure employees consistently communicate the program to guests.
  3. Identify a reward structure that is compelling for guests and affordable to fund.
  4. Implement a program that does not cannibalize sales.

The strategic plan included detailed analysis of the following unique and distinct areas of the chain’s operating environment and proposed reward structure:

  • What information is required in the customer database?
  • What is the best approach to the loyalty program rules (points, product, tiered, layered, and promotional)?
  • What is the best way to communicate the program to the guests (campaign management requirements)?
  • How to effectively launch and drive participation in the program?
  • How to measure success/return on investment (ROI)?
  • What are all the key steps in the program development and implementation (sequence and timing/road map)?

Key components of loyalty reward program strategy that helped ensure that the key success criterion were achieved include:

  1. Buy-in from the top executives and all levels of management.
  2. Simple program structure of 10% (every $50 in purchases earned a $5 reward).
  3. Effective train-the-trainer program to ensure all employees know how to communicate and promote the loyalty program.
  4. Customized one-to-one communication to members to keep them interested and remind them of their point/reward level to encourage frequent visits.
  5. Leverage the customer data to guide decisions and evaluate the program results.

Results

The results of the Rewards program exceeded expectations with high member sign-up and participation, improved visit frequency and increased average check size. The rich data collected from the Rewards program was eye-opening from a customer loyalty and customer value perspective. Based on revenue contribution, one of the most loyal “best guests” generated the same revenue as nine of its “average guests.” Now that’s loyalty! Other key results from the Rewards program included:

  • 43% of guests participated in the Rewards program
  • Rewards members visited 35% more frequently
  • Rewards members spent 24%-32% more than non-Rewards guests
  • 1.8% of Rewards member “best guests” drove 7% of total revenue

Paul was chief information officer for Papa Gino’s Pizzeria and D’Angelo’s Grilled Sandwiches. He has extensive experience with IT strategy and transformation, business intelligence systems, ERP systems, data privacy, POS networks, operations management, and strategic solutions selection and deployment. He also held IT leadership positions at Rainforest Cafe and Ryan’s Family Steak Houses. He was awarded IBM’s 2008 BI Vision Award for Strategy Execution, and made InfoWorld’s 25 Best CTOs of 2009 and CRN’s Top 100 Mid-market CIOs of 2010.

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