Loyalty programs: information is marketing power

By Mike Deibert
Contributing editor

When Newfoundland’s economy was down a number of years ago and the province was losing population, Westside Charlies had to take customers away from competitors because the market was getting smaller, says Wade Gravelle, co-owner of the St. John’s–based casual dining and billiards chain with 13 units in Newfoundland and one in Nova Scotia.

One of the means he used to pick up more customers was a loyalty program. He bought the Aloha POS system from Radiant Systems, with loyalty capability.

Customers pick up points every time they order something in a Westside Charlie’s restaurant and when they collect enough of them, they can redeem the points for a variety of rewards. As frequent customers, they also qualify for different discounts.
But this is only half the story.

Equally important to attracting more patrons and encouraging repeat visits, the loyalty program allows Gravelle to keep tabs on his best customers and make sure they are well treated and motivated to keep coming back, as well as allowing him to track down people who have not returned for some time and offer them incentives to come to the restaurants.

Jason Lee, marketing manager at Toronto-based POS systems company Moneris Solutions, explains this strategy.

“Repeat customers are the lifeline of a restaurant,” he says. “Typically, repeat customers account for 70 to 80 per cent of revenues. This is especially true of restaurants who rely on their repeat customers and locals to keep them busy during the non-peak times. Loyalty programs provide restaurant goers added incentive to come back, and to keep coming back.”

 “Statistically, acquiring new customers can cost five times more than satisfying and retaining current customers,” says Lucky Thalas at SilverWare POS Inc., based in Lombard, IL.

“In addition, the average company loses 10 per cent of its customers each year.   Implementing a loyalty program can reduce the defection rate.  In fact, cutting the defection rate in half to five per cent can increase profits by 25 to 125 per cent.”

Gravelle says the Loyalty program gives him a great advantage over his competitors.

“I can quantify to a dollar what my customer is worth,” he says. He says some spend $1,000 a month. “If you lose one of those guys, you want to know.”

When he started losing customers because of the smoking ban imposed by the province, he used the loyalty program to entice some back. He e-mailed them to let them know they were valued customers and offered a “really aggressive coupon,” he says.

The information he has also allows him to make deals with suppliers, who offer him incentives to turn over competitive market data. For example, he points out, people from Budweiser want to know who’s drinking Blue Light.

Gravelle says West Side Charlies has 25,000 members in its loyalty program, allowing him to track about 35 to 40 per cent of sales. Ten to 20 per cent of sales are to “hard core, very loyal” customers, he says.

From burger joints to high-priced restaurants

Loyalty programs and be used by all types of restaurants, whether they QSR, casual dining or even fine dining.

Patrons of fine dining restaurants are not as likely to care about free or discounted items, points out Jessica Lundberg, senior marketing manager at Radiant.

They are more likely to be attracted by “soft” rewards such as  recognition and special service: automatically being given a good seat, securing preferred reservations based on visit frequency (kitchen or chef tables, for example), complimentary valet parking, recalling the spouse’s name, wine suggestions based on stored preferences.

However, their interest can be piqued by free things, if they’re big enough.

Karen Budahazy, executive vice-president at the Toronto-based POS firm, Givex, says larger rewards, such as a trip to Vegas, may be claimed by customers who can easily spend $500 to $1,000 each time they visit a restaurant.

Getting the most from frequent customers

A well-run loyalty program has the following elements:

• It starts with a good customer database. An operator can encourage customers participate by offering extra points  to sign up, and staff must be encouraged to promote the program and collect the data

• It is easy to understand and use. “Simplicity is really the key to any good loyalty program,” states Budahazy. If customers don’t understand it they won’t participate. Neither will restaurant staff who have to be able to understand the conditions and rewards in order to explain them to customers.

An employee should be able to explain the program during an elevator ride, Radiant’s Lundberg.

• Rewards are attainable. “If the thresholds are set too high, customers may soon lose interest and your program may become lost in the ‘wallet clutter’” observes Lee of Moneris.

• Bonuses can be earned at a number of locations. This point obviously applies chains or restaurant groups. Points earned at one restaurant should be good in another in the same chain. The same goes for a multi-concept group; customers should be able to earn and spend points whether they’re in the group’s sushi restaurant or its steakhouse.

“The more locations a customer can earn their bonuses, the more likely they are to frequent those places,” says Steve Aucoin of Aloha.

“If the only place to earn bonuses is 10 minutes out of my way, then there is very little incentive for me to go that extra step.  But if there is a place along the way, it is very easy for me to stop.”

Kelly O’Bryan’s Neighbourhood Restaurants, runs its loyalty program this way at its five locations in British columbia, using Profitek’s POS system.

• Customers can check their points online. The idea here is to give your customers a reason to visit your site, to stay connected so you can cement your message and introduce new offerings,” says Fraser Brooks, Vancouver-based business develop manager for Profitek, the POS system provided by InfoSpec Systems.

Also, he says, customers may be more likely to choose a restaurant where they have built up points when checking online for somewhere to go eat.

Profitek system user Flying Wedge Pizza, with 16 locations in British Columbia, posts special offers on its website and also advertises its loyalty program.

Customers can log in to update their profiles, see their balances and their transaction history, explains Budahazy at Givex. They can redeem rewards online.

Mistakes to avoid

After going to the trouble of setting up a good database one of the worst things an operator can do is not make use of it.

Do not underestimate the work involved in maintaining a good database, warns Lee of Posera. Make sure you set clear objectives and formulate a plan with short and long term goals, he adds.

Not promoting a loyalty program, both to the public and company employees, can be a formula for failure. Lundberg at Radiant says it is imperative to talk up the program with in-store materials, as well as with advertising and other forms of promotion.

“Additionally,” she says, “successful loyalty plans are promoted at all levels of the organization. A restaurant’s staff must be properly trained on the details of the program and should convey those details to the guests with enthusiasm and excitement.  We’ve observed that having server/cashier contests for new member sign-ups has been a successful method of promotion.”

Operators should also fish where the fish are. It is a mistake to focus on converting your worst customers instead of putting your strongest efforts into keeping your best customers and increasing their spending, says Budahazy.

She advises keeping in mind the marketer’s 80–20 rule: 80 per cent of your sales come from 20 per cent of your customers.