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Unleashing the Power of Loyalty Programs

A growing trend in the hospitality industry is the use of loyalty and reward programs to give incentives to your customers to continue returning.  Rarely will a customer visit a national or regional restaurant or hotel without finding an incentive program.  Dine 9 times and receive your 10th meal free or earn 500 points and receive a free dessert.  The options are many, but where are the independent restaurants in the loyalty game?  Often times, loyalty programs are difficult to maintain, require a high upfront cost, or are simply too much of a hassle for local and regional restaurants and restaurant groups.  But even with the difficulty presented, tapping into the realm of creating a loyal base with the use of incentives can be a powerful tool in your passive marketing campaign.

We are a generation of attention seeking, pat-on-the-back desiring consumers who enjoy when a company appears to go a little further to recognize us for choosing them as the recipient of our hard earned money.  It’s a fundamental part of our self esteems and egos to desire a nod of approval.  A nationally recognized weight loss program even realized this, and many of its followers attribute their success as well as their continued patronage to a simple gold star and recognition given each week.  Studies have shown it often doesn’t matter the value or the size of the reward given, rather the ability and ease for the customer to earn the reward that makes the incentive valuable.

The most difficult issue the local or regional restaurant has in creating loyalty programs is scope.  National restaurant chains like T.G.I. Fridays can create self branded cards and have a national loyalty program simply due to the size of the organization.  But without national recognition, what avenues of creating a successful reward program should a restaurant take?  There’s several.

The most common method is the self-branded card.  This can range all the way from self printed business cards with check boxes to barcode or magnetic strip plastic cards integrated into your Point of Sale system.  The benefit is that the customer has your card in their wallet and it serves as a reminder of your presence.  Additionally, it can be easily integrated into the POS system, allowing very little additional work for your servers and cashiers.  The detriment of the self-branded card is that customers are growing more and more leery of carrying so many cards.  If the customer doesn’t have the card, it can create a barrier between you and the customer when the goal was to create a stronger relationship.  When asked if she would eat at a particular restaurant more if it had a loyalty program, Emily Gamin, restaurant patron from Oklahoma City, Oklahoma says “I would, if it didn't involve punch cards or other types of cards. If it could be managed through a smartphone app, that would be ideal. I never remember the cards, or I can't find them.”

As a technologist, I find the most successful and consumer friendly options for loyalty programs are the ones that utilize the very tools that I already have.  With the number of individuals in the United States with cell phones approaching 100%, it seems advantageous for restaurants to find more ways to allow the customer to use their favorite gadgets to connect with you, and vice versa, and several methods exist to allow you to tap into this connection.

Many restaurants are choosing to create loyalty programs by the development of their own custom smart phone apps.  This allows the restaurant to create individual, specific, custom content utilizing your own branding and marketing strategy.  However, keep in mind, custom app development can range from $5000 to $10000 depending on the complexity of the system you desire.  Additionally, it requires the customer to have additional applications on their device.  With that in mind, custom app development would be an advantageous option for a regional or super regional restaurant group, but would most likely be ineffective for a local restaurant or small regional restaurant group.

Another option would be to participate in a national rewards network system.  Deelioz, an app for the iPhone and Andriod,  (www.deelioz.com) uses GPS coordinates to allow your customers to earn points each time they physically visit your restaurant.  Deelioz is a free service to the restaurant and allows you to create your own reward system.  The benefit of a system such as Deelioz is that it allows the customer to search for restaurants and establishments within a certain locality that offer loyalty programs.  Deelioz allows the restaurant to not only reward patrons for their own visits, but also for referrals. Additionally, solutions such as Deelioz require no proprietary hardware for the restaurant, making implementation quick and inexpensive.

Another app based service, Punchh (www.punchh.com)serves as a virtual punch card, allowing the restaurant to set up their own validations, rules, and  reward systems.  Furthermore, Punchh allows your customers to earn punches by referring their friends, further pushing the reach of your loyalty program. “Customers make food decisions with friends, family, and colleagues,” says Punchh Co-Founder Sastry Penumarthy. Word of mouth advertising is becoming more and more powerful, especially when tied in with social media tools. Punchh also facilitates cross marketing as well as reward gifting, further extending the reach of your loyalty program.  With Punchh, restaurants can amplify the word of mouth by having loyal customers post reviews. Punchh also facilitates reward gifting between customers, group rewards, and cause marketing, thereby extending the reach of loyalty programs into rewarding social behaviors such as group dining and cause marketing.

 Utilizing the power of a virtual reward program such as Punchh or Deelioz can help not only create loyalty, but draw attention to your restaurant and attract new customers.

The travel industry has long seen the benefits of rewards programs.  As restaurants begin grasping the value and importance of incentives and rewards for their best customers, it will be key to find yourself at the top of this growing trend rather than lagging behind.  Your willingness to thank your customers, even in what may seem in a trivial manner, will pay off greatly in the future as the economy strengthens and restaurants see new growth.  Implementing a technology solution for your reward program will give you the power to tap into not only the current generation of technology savvy consumers, but will extend your reach far more than a plastic card in a patron’s wallet.


Shawna Simpson is the President and Co-Founder of Diner Connection.  Shawna has 15 years of experience in management and consulting in the hospitality industries, specifically in the area of implementing successful technology solutions.  

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Comments

  • Wow, the loyalty thread is back.  Timely given I just posted The Loyalty Game yesterday since Shawna you motivated me to address the subject, especially after I further researched Plink.

    http://smartketingreflections.blogspot.com/2012/06/loyalty-game-par...  Anthony, all good points.  Loyalty marketing is definitely morphing.  Providing consumers or our guests in our industry the option to select their rewards be it for repeat dining certificates, gas, clothing, playing social games to me is what is evolving, especially as we are transforming to a mobile world which is going to make the tracking and gamification element of loyalty programs very popular among the wired.

  • Sorry for such a long delay in response but I've got #'s to hit and I honestly wanted to put as much thought into my response as possible.

     

    Shawna asked:  “I'm curious how willing the restaurant is to share their diners across your network (i.e., can they see the benefit vs the small sacrifice).”

    My Answer: I hope this doesn’t sound cocky but the restaurant isn’t sharing “their diner” we are sharing OUR member. Our member has taken the initiative to sign up with us and given us a lot of information so that they can receive a benefit for dining at our participating restaurants.  In other words we are now showing our 3.4 million + members a restaurant that they can now go to and earn the reward of their choice in exchange for dining there. Usually there are tons of competitive restaurants that are in a certain market but only a select few restaurants where our members can go to earn rewards. To put it in perspective, if there were 10 sushi restaurants in your area but only 1 or 2 that you could go to and earn airline miles, hotel points, $ for the charity of your choice, cash back or store points to Best Buy, where would you go? If you could also gain more points for giving that restaurant feedback, where would you go?

    Shawna said:  Personally, I think the best option would be to model the travel industry and set it and then let it grow.  They all work relatively the same way in the start - either show up or diner at the restaurant and earn points/punches/kicks.  The differentiating factor is what you have to do to get your credit (card/phone/check-in/geo-locate) and what reward you get.  Who will create the better dangling carrot?

    My response: It’s actually quite ironic that you mention how the travel industry handles their rewards programs because Rewards Network manages the frequent dining programs for basically every major airline plus Hilton and Holiday Inn. While our members can earn points for their hotel stay or airline ticket, they can also dine at our participating restaurants to add to those points.

     I’m not sure who will create the better dangling carrot but Rewards Network has spent 27 years building relationships with the travel industry and giving their members incentive to dine at participating restaurants. Rewards Network manages these travel and hospitality companies frequent dining programs exclusively. I’m 100% biased but I think that we feel that we already have the better dangling carrot but since we chose the restaurants we want to feature and have minimum qualifications, we don’t advertise like some marketing programs are able to. 99% of our participating restaurants never knew we existed but they’ve heard of Southwest Airline’s www.rapidrewardsdining.com  , Hilton’s  www.hhonorsdining.com or American Airline’s www.aa.rewardsnetowork.com.  

    Jim asked: “My question this morning Anthony & Shawna, will there be too many reward/loyalty programs at some point?”

    My response: It’s my belief that until every restaurant has some type of program to reward loyalty and increase frequency and spending there aren’t enough programs. Most restaurants are in maintenance and hope new people show up mode. Quite a few are very proud that they don’t spend a dollar on marketing and keep this mentality even though they also show no growth.

     Some restaurants recognize that there is opportunity for growth after their first year and know that there are things that they can do to actively draw a customer in vs. passively hoping. Restaurants grow based off of 4 basics 1. Gaining new customers 2. Retaining a current customer  3. Increase frequency of current customers. 4. Give customers incentive to spend more.  90% of the restaurants that I meet every day do not have any type of loyalty/rewards program. Most have no way to communicate with current customers once they’re outside of the restaurant, cannot capture feedback needed to retain customers and they have no way to give incentive to customers to spend more at the restaurant. Not having a loyalty or rewards program = passively hoping someone shows up or even worse, spending money on ads and passively hoping someone shows up. Having a loyalty and rewards program = taking matters into their own hands and actively driving someone to dine there. The fact is that even if a restaurant prefers to passively gain a customer, they have a better chance of spreading that word of mouth by also actively driving in a new customer. Ads do not actively drive in customers unless there is a discount or promotion.  Bottom line is if I’m a restaurant owner I’m trying to control as much new business as possible because that’s all I can control with regard to sales. If I can do that without discounting and also give the customer incentive to spend more and capture their feedback while having the option to communicate to customers passively, I’m on it. With any rewards program the restaurant gains at least a few of these benefits and as a shameless promoter of the company I work for, we can deliver all of these benefits and more. We’ve been chipping away at it for 27 years and work in conjunction with many rewards/loyalty programs nationwide and we still see a massive need. 5 years ago I was struggling to get restaurants to see the value and profit from having gift cards vs. certificates and now I’d say most restaurants see it as a no brainer to have gift cards. At that time, many people thought there were too many gift card companies. As restaurant owners get more actively sales focused in this economy, I’d like to think that in 5 years loyalty and rewards programs will also become a “no brainer”. I think that over the last few years many restaurant owners grasped the concept of actively driving new customers via discounts/deals but they didn’t see enough new customers or loyalty and decreased spending. I hope that restaurants will now see that there are ways to actively drive in a diner because of loyalty/rewards while increasing per ticket spend. That’s exactly the niche that we are able to focus on so obviously I’m a bit jaded. I owned my own business before joining this company and I did so because I was so blown away by the offering and it’s benefits to the customer. As a moral person and an Eagle Scout in a small market where everyone knows me, I was looking for something I could stand behind and know that I could deliver my word. The company I work for allows me to do this but there are many other loyalty/rewards programs that I could promote even though they do not deliver the total package that I can with Rewards Network.   



     

  • Jim - I fear so.  I think right now we are in the phase where rewards programs are still trying to figure out what the consumer wants.  Personally, I think the best option would be to model the travel industry and set it and then let it grow.  They all work relatively the same way in the start - either show up or diner at the restaurant and earn points/punches/kicks.  The differentiating factor is what you have to do to get your credit (card/phone/check-in/geo-locate) and what reward you get.  Who will create the better dangling carrot?

  • Anthony - I believe the concept behind what you do is great.  For my own personal application, it would perhaps be difficult to manage.  I use various cards for various purposes.  Family shopping is on one card, business is for another, and there is still a very large percent of time I prefer to pay with cash.  However, for the majority of diners, this isn't an issue.  I definitely think you do a great job of solving the fat wallet problem.  I'm curious how willing the restaurant is to share their diners across your network (i.e., can they see the benefit vs the small sacrifice). 

  • Anthony:  Interesting.  Thank you for making me aware of your company.  Another loyalty program that I learned about recently that has not targeted restaurants yet (to my knowledge) is ShopKicks.  Retailers put a transmitter on their front door, if you have the app, when you are within proximity you will be notified and get 50 kicks (rewards) for entering.  Once you enter you are notified of what else is on sale or good for kicks.  Then you can trade your kicks in at some point for merchandise at Old Navy, Best Buy, etc. (they have signed up a lot of strong Retailers)  They are now testing with Mobile/Exxon in three markets, kicks can now go for fuel credit. 

    My question this morning Anthony & Shawna,  will there be too many reward/loyalty programs at some point?

  • Shawna,

    I work for Rewards Network and would love to hear your feedback about how you think our offering fits into this article. What we do is pretty unique because we bring our 3.4 million members to the restaurant Vs. the restaurant having to build their own member base. We handle the rewards, marketing to the members and a huge component of our offering is also gathering feedback about the member's experience. I'm based in OKC and I'd love to talk shop sometime!
  • Thank you Michael, and I agree.

    Jim - Great point.  I have to agree.  With the astounding number of my peers, especially women (who often drive the dining choices in a family/couple) who are extremely social media savvy as well as hooked on the aspect of social games, a restaurant that can utilize gamification well would have a tremendous lead on their competitors.  Small, incremental challenges that require me to tap into the participation of a diner's friends list for incremental rewards would be a potential rumble in the opening of the floodgate of a great reward system!

  • Great post and valuable information. Deelioz is a very cool concept that needs a lot of traction quickly. We should find a way to help them, eh?

  • Shawna:

    I really enjoyed this post.  Great content.  Some of which is new to me given I have been studying and speaking about loyalty programs.  I think overall as an industry we get it and are beginning to make progress, but as a student of consumer behavior, especially Millennials and players of the lottery, we as an industry have to recognize that the next big wave or loyalty/rewards programs are going to have to offer an element of gamification.  SCVNGR pioneered the concept last year during March Madness with Buffalo Wild Wings.  Here is the latest I read about that I believe has legs: https://www.plink.com/index.cfm?fuseaction=main.aboutUs

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