New Loyalty Strategies

By George Koroneos | February 19, 2008

Visit almost any retail outlet and at some point in the purchasing process, an employee is bound to offer enrollment into the company's loyalty program. From Best Buy to Marriott, nearly every major retail chain offers a rewards program in some form, and as these programs become more competitive, so do benefits to the consumer.

According to a recent study by Colloquy, a Milford, Ohio-based loyalty marketing company, in the United States alone, Americans possess more than 1.3 billion loyalty memberships, a 35.5 percent growth rate since 2000. The average number of memberships per household is 12. The report estimates that "only 39.5 percent of all memberships are 'active' - an average of 4.7 per household, or approximately 2.5 per person."

That's a lot of bonus points and coupons going out to customers, but what do restaurant operators stand to earn from a customer loyalty program, and - more importantly - how can restaurant operators take advantage of these benefits?

Two Words: Customer Data
Restaurant operators want their guests to be happy and keep coming back, but they also want to know what their guests' favorite dishes are, how much they spend at the establishment each month, their names, their birth dates, and of course - their e-mail addresses.

Technology has made it easier for operators to discover who their customers are and reach out to them. One of the most popular ways is through benefits cards, similar to those offered by book and entertainment outlets such as Barnes & Nobles and Best Buy. Scan the card at the register, and the POS system can record information ranging from the customer's location to the number and regularity of purchases.

Using a new Aloha program dubbed eFrequency from Radiant Systems (www.radiantsystems.com), Canadian restaurant chain West Side Charlie's created a program that allows customers to gain points for every item they order (similar to earning frequent flyer miles). Different food purchases are worth different point amounts, encouraging the customer to splurge for that extra beer or entree. When a guest reaches a certain point level, he or she receives a voucher for $5 off a meal. The program also allows the establishment to offer specials that can only be redeemed by using the loyalty card.

"What we are trying to do is track the customer purchases, because we want to reward our customers but also to capture data," says West Side Charlie's vice president Wade Gravelle. "We want to know who our customers are, when they are coming and what they are buying."

The POS software allows the restaurant to activate the cards on the spot and then key in customer information at a more convenient time. The customer can even enter his or her information directly from their computer because it is a Web-based technology.

"We have 25,000 card holders right now and a market place of approximately 2 million people, and we are tracking approximately 35 percent of our sales, which is pretty high," Gravelle explains. "It has really helped us narrow down what is going on in the marketplace."

For example, this particular region of Canada recently experienced a smoking ban that impacted sales at the establishment. When heavy purchasers began to disappear, the Aloha system tracked the missing customers and the company began reaching out to them through heavy e-couponing.

Information Clampdown
With more data, however, comes more responsibility. Sure, a restaurant can blast out coupons daily to thousands of customers, but what good does that do for the company, especially if the mail gets delegated to the spam folder?

In the Colloquy study, e-mail and web-based communication generated similar responses as direct-mail responses, with approximately four in ten loyalty program participants citing "extreme involvement." Surprisingly, young adults are not as engaged in electronic channels (at least in the case of loyalty programs) as they are with other forms of direct marketing. So, who are the customers that are most likely to click and shop? Hispanic Americans and affluent Americans respond most positively to e-marketing, according to the report.

"We have a database of 15,000 people, so sending a mass e-mail to everyone isn't worth it," says Esam Elqunni, owner of T&J Restaurants (a Chevys franchisee), which installed Squirrel Systems' (www.squirrelsystems.com) integrated loyalty package at its 10 Chevys locations in St. Louis, Missouri. "It makes much more sense to mail out through a targeted list of at-risk customers. We will actually send an e-mail asking the customer how their last visit was in the hope they respond. Not every guest that has a bad experience is going to call you - they are just going to stop showing up. This gives us the ability to grab them and try to bring them back."

When the guest applies for a card, Chevys captures information such as e-mail addresses. The software flags customers that haven't returned in 60 days and notifies the operator. "We then attempt to find out why they stopped coming," Elqunni says. The loyalty program sends an e-mail just to that one customer with a coupon in hopes of enticing them back.

"We have the ability to capture the meals they have been ordering," Elqunni explains. "So we can look at what a particular customer likes and send them e-mails targeted to their meal preference. If they like steak, we will send them a coupon for the type of steak they like."

To speed up the registration process, some restaurants use active cards with no name that can be used at the time a customer asks for a card, and can register and finish the application at a later time. The customer can't redeem points until all information is received by the system.

"It's about quickness - ten minutes to sign up is too long," says Rick Zimmermann, owner-operator, Dicken's Pub in Burlington, Ontario. "If customers don't like an incentive program, it's because the restaurant is making it too complicated."

Zimmermann uses a loyalty program that plugs into his Digital Dining (www.digitaldining.com) POS system. Every server and bartender explains the program to the guest and a sign-up sheet is included in every billfold. This program offers five percent of a guest's sales back in points up to 5,000 points. Once they hit that level, they go up to a higher tier level.

"People feel right off the hop that there aren't any gimmicks or anything," Zimmermann says. "It makes sense to just have the card and use it any time they come to the restaurant. It's an incentive for the guest to come back."

Private Party
While most restaurants try to make signing up for a loyalty program as painless and - more importantly - as free as possible, there are some high-end establishments that not only ask for an enrollment fee, but the customers also look at their membership with prestige.

Kathy Turley, senior manager of loyalty marketing at Palm Restaurant Group explains that its ten-year-old loyalty program was launched because operators felt they needed to reward their most frequent guests and wanted to track customer information.

From a customer-facing front, the restaurant was able to create a program that is very rich with rewards. From a company perspective, the restaurant can find out how often people come and how much they spend. "That information is very valuable to us because it allows us to better market our national promotions and market specifically to the members," Turley says.

Palm's program is integrated through its Micros (www.micros.com) POS platform, which features a customized version of Micros' iCare loyalty plug-in. What is unique for Palm's program is that it allows guests to bank points and redeem from a reward schedule without fear of ever losing the points. There is no "use it or lose it" clause. "We have criteria that customers use their card at least once every 18 months to stay active, but that's pretty generous," Turley says.

Although the pay-to-play benefits program might work for Palm, most people cite "not wanting to pay a fee" as their second biggest concern when signing up for a loyalty program. Nearly 18 percent of those interviewed by Colloquy stated that the cost of joining is the second biggest factor in declining a benefits card.

For Palm, members generate more than one-third of its sales - an absolute success according to Turley. "Members feel like they own a little bit of the Palms," Turley says. "They feel like there is a sense of entitlement, so they are very vocal and they give us feedback on everything. It is a great dialogue between our members and the corporate office. Without that loyalty program, without that sense of belonging, we wouldn't get the honest feedback that we get."


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