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James La Forte | March 24, 2023 |
Most business owners who rely on customer traffic or repeat business understand the importance of a loyalty rewards program.
These programs help to increase the customer lifetime value (CLV) of their existing customers by building brand loyalty and engagement.
Today, many businesses have had to cut back their marketing budgets due to economic conditions. This means it's more important than ever to make sure you are getting the full value from your current customers.
So now is a great time to analyze your customer loyalty program and make sure it's being leveraged to its fullest so you can maximize your current customer base.
Below, we'll go over some key strategies to help refocus and improve your customer rewards program.
Restaurant loyalty programs can have such great benefits for a business's bottom line, but owners often neglect the program once it's up and running. Generally, this is due to time constraints from the many other aspects that come with running an already busy restaurant.
But a little bit of attention can yield a big return on investment (ROI) when it comes to loyalty programs.
Most restaurants are using a point-system loyalty program where the amount of money spent by customers is converted to points which then unlock various benefits or discounts.
The goal with these is to make sure you are rewarding your top customers, and, consequently, driving customer retention for your brand. Top customers are generally worth five times more in lifetime value than other customers. So losing these customers can have a significant impact on your profits.
The next goal is to turn as many of your ordinary customers into top customers through your loyalty program. Your rewards program should drive the customer behavior you are trying to increase. Generally, this involves turning ordinary customers into more frequent and higher-spending top customers.
Here’s a major question for consideration: which behaviors are we trying to drive?
This is where your customer metrics come into play. You should already be aware of metrics such as your average order value and customer lifetime value. In addition to those important metrics, here are a few others to help you encourage return visits, retention and general loyalty.
This is the measure of customers who have made at least two purchases over a given period of time.
You can calculate the rate by using the formula below.
(Repeat customers) / (Unique customers) X (100) = % of repeat customers
This metric is often used to determine other metrics, so it's an important foundational number despite not having too much value by itself. It tracks the number of times a customer makes a purchase within a given period.
The formula to calculate this can be seen below.
(Total orders placed) / (Total unique customers) = Purchase frequency
Here, you'll use the purchase frequency metric calculated above to find out the customer lifetime value. The time can be any period you choose and doesn't have to be the lifetime of the business.
(Purchase frequency) x (Average order amount) = Customer lifetime value
This metric is pretty simple and tells you the average size of your orders or tickets.
(Total revenue) / (Total orders) = Average per order
For many of these metrics, you will want to measure different time intervals to spot changes, either positive or negative. In this case, these are all metrics you are going to look to improve once we start implementing the strategies below.
So now that you have an idea of what your metrics look like, it's time to implement some strategies to improve them. Improving customer loyalty and retention should be an ongoing process involving regular engagement, so there should be at least one thing here that you can begin to apply today.
Many business owners default to the most basic form of reward, which is to simply offer discounts at various tiers or thresholds.
While this may seem appealing to customers, it trains customers to think that your product is actually overpriced. Reed Daniels, CEO of Red’s Savoy Pizza, has strong opinions on this matter, and never offers traditional discounts at his restaurants. Here more from Reed in this Restaurant and Retail Revel(ations) podcast episode.
Frequent discounts devalue your product in the minds of customers and that's not the goal of a loyalty rewards program.
Instead, add value to existing orders by adding bonuses or upgrades. These serve double duty for both maintaining the perceived product value but also makes customers feel special and rewarded.
This helps build brand loyalty, which is a key goal of the reward program in the first place.
How easy is it for your customers to join your reward program?
Can they quickly scan a QR code, input their phone number at the point of sale (POS) or use some other method to instantly join, maybe even while waiting for their order?
You should strive to make your reward program as easy to join as possible, and digital loyalty programs are making this easier than ever. Make sure to audit your process and look for pain points or friction in the sign-up process.
Beyond just generating more sign-ups, a fast and painless process also allows employees to recommend the loyalty program to every customer without hampering service.
One of the older methods for using a reward program was to tie the rewards to the number of visits or orders. But this is an outdated system in the age of instant gratification. If it takes too long for your guests to reap their benefits, customers end up losing interest altogether.
Instead, try to offer a reward at each visit if a threshold is met. Something like an upgraded drink size or a complementary side order can go a long way here. This drives repeat business and in-store traffic and keeps the reward program feeling fresh and immediate for customers.
For some restaurants, loyalty rewards programs offer perks that add excitement and fuel more engagement.
A perfect example is something like a secret menu. Consider a secret menu for a handful of items like deserts or side orders. Many customers love the opportunity for exclusive access to lesser known items, and rotation of items can be a fun perk for them.
Another bonus with this technique is that you can use it as a reason to reach out to customers through customer retention management (CRM), with custom promotional messaging either via captured email or SMS.
Tying the secret menu to certain days and then sending out promotional messages alerting members of the upcoming day and items available is a great way to stay connected to your guests. This will feel much less obtrusive than generic messaging promoting the restaurant, resulting in higher engagement.
Finally, this approach can also be a great driver for sign-ups. Let customers know the only way to access the secret menu is by becoming a member. If you host your rewards program via a loyalty app, you can take advantage of in-app messaging and push notifications to communicate your menu exclusives with members.
This approach creates a healthy bit of FOMO (fear of missing out) and helps build loyalty in a fun and engaging way.
Overall, the goal is to be creative with your rewards and try to tailor them to your restaurant audience. They don’t always have to be free items. Preferred access or service perks are also great reward benefits that customers enjoy.
A loyalty rewards program isn't worth much if the front-of-house staff doesn't promote it effectively. In fact, your team is a crucial part of your loyalty marketing strategy.
Make sure your staff understands how important it is to promote the program. Every customer needs to be aware of the program.
If you've tied the program to fun and engaging rewards like the ones mentioned, it should be an easy sell and one that most customers want to enter.
The last thing you want is the loyalty rewards sales pitch to sound like you’re selling insurance. This is why it's also important to keep the rewards fun and exciting. It makes it an easier sell in the first place and also promotes engagement after initial registration.
Once you've begun to make changes to your loyalty program, go back and study your metrics again. You should start to see those metrics improve.
In order to effectively track improvement, start with one change at a time so you can easily determine what is working and what is not.
Whether you decide to change one or two things or ultimately overhaul the whole system, remember that any effort you put into improving your loyalty program will yield benefits that far outweigh the initial investment of time and money.
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