The secret sauce for a winning restaurant loyalty program

loyalty in restaurant industry

Marketing

Oct 12, 2022

David Hartery

Content Lead

Time to read icon

8 minutes to read

While one-size-fits-all loyalty programs are becoming less popular in the restaurant industry, brands are looking for ways to make their rewards programs stand out. This is because they're catching on to the fact that loyalty is an effective tool for increasing profit margins and driving repeat business. 

Loyalty programs also provide access to valuable customer data that can help brands better understand how people interact with their products — and how they might be persuaded to keep coming back for more. 

With inflation hitting customers’ pockets, how you design a loyalty program can be key to success or failure. And ensuring you have the technology to respond flexibly and efficiently to consumer demand is a real difference-maker in the quick-service restaurant arms race.

In this blog, we'll explore why restaurant loyalty programs have become so important in recent years — particularly for fast food chains like McDonald's — before outlining some of the ways these companies have been leveraging technology in order to adapt their offerings so they can stay ahead of their competitors.

Fast food is a loyalty battleground

Restaurants are fighting for customer loyalty. The quick-service industry has become a battleground, with the major players vying to get customers to visit their restaurants more often by offering head-turning promotions and rewards. These programs offer incentives such as free food or drink items, birthday offers, and even discounts on takeout orders. But there's one key innovation chains are turning to: using technology as an integral part of their loyalty programs.

The average American visits a restaurant 5 times per week, according to the National Restaurant Association (NRA), but only 1 in 10 people will actually sign up for a chain's loyalty program. This is an important stat: with the rise of mobile app-based loyalty cards or systems, users are now members of more loyalty schemes than ever before — and actually, are active in more of them than you’d expect. And while some chains have seen success with their own mobile apps — Taco Bell has over 6 million users on its app — most restaurants aren't availing of this opportunity at all.

Brands are leaning into loyalty programs

Before the rise of smartphone apps, there were punch cards — little pieces of cardboard that stores issued to customers in exchange for each purchase. The system has evolved, but the core philosophy remains: collect ten stamps at a given establishment and you'll get a free treat on your eleventh visit.

For example, Starbucks customers earn “Stars” for purchases and then can redeem a certain number of Stars for free items. Now that orders can be tracked via mobile order technology, companies may offer rewards that are more complicated than simply offering extra points for purchases made on consecutive days or at certain times of day. For instance, our customer Flash Coffee has completely gamified their ordering and loyalty experience.

According to one report, restaurants and convenience stores that experienced an increase in visits between January 1, 2019 and December 31, 2021 could attribute up to 30% of those additional visits to the addition of new or improved loyalty programs. So there’s clearly a huge benefit to getting it right.

And this is all based on one key aspect of human psychology: when a business offers its customers something of value (e.g., a discount or bonus) in exchange for performing an action that benefits the company, it’s likely you'll hear from them more often.

Loyalty increases profits

Loyalty programs not only encourage customers to visit more often, but also entice them to spend more money upon each visit in order to earn the promised rewards.

Business Insider reports that Dunkin’ recently changed its Dunkin’ Perks program to the new format called “Dunkin' Rewards,” and it appears that this change is connected to how similar programs from competitors like Starbucks have been successful. In making these changes, we can see glimpses of what might lead customers toward larger purchases at their local Dunkins'.

In the past, Dunkin Perks customers earned five points for every dollar spent and could redeem a free drink at 200 points or $40 worth of purchases.

The new Dunkin’ Rewards earns 10 points for every dollar, but the points are redeemed for smaller rewards; the bigger rewards cost more points than they did before. For example, you can redeem 150 points ($15 in purchases) for an espresso shot, Munchkins, or hash browns, but it takes 500 points ($50 spent) to earn a free drink (again, it only cost $40 before).

Similarly, Chipotle also recently increased the amount of points it takes for loyalty customers to earn a free burrito. Chipotle loyalty members previously had to spend $140 to get to a free item. Now, it costs $162.50. The brand is hoping that the allure of a “free” upcoming item is strong enough to get customers to spend an extra $22.50 to get there.

Customers who are loyal to your brand are more likely to spend more money and become repeat customers, which means an increase in customer lifetime value (CLV).

A loyalty program can increase profits anywhere from 5% - 95%. This is due to increased repeat business, as well as increased customer spending.

Loyalty increases repeat business

Repeat business is a good thing. Repeat customers mean your restaurant is doing well and that you have customers who are happy with the service they're receiving. They will also be more likely to refer friends, family, or co-workers who may be interested in trying out your establishment as well. This means you don't have to worry about marketing yourself — you already have enough advocates who are willing to spread the word for you!

Additionally, repeat business means that you can focus on improving core aspects of your product or service rather than how to get people in the door once again. When someone comes back for a second visit, it shows that they really like what they experienced during their first visit – so it's up to you as restaurant owners/managers/employees to make the most out of this fantastic opportunity. 

customer loyalty

Loyalty gives brands access to valuable zero-party customer data

A loyalty program provides a brand with access to valuable zero-party customer data, which can be used for a number of purposes. The data can be used to improve the customer experience, increase profits and even predict demand. Data from loyalty programs can also be used by brands in order to improve service levels, marketing campaigns or advertising strategies.

Businesses are finding that the best way to get consumer data is to simply ask for it. The method you use to ask for it, however, defines your success rate. Some of the common ways to collect zero-party data are:

  • Quizzes: Quizzes usually have a high participation rate.

  • Post-purchase surveys: You can ask your customers to spend a few minutes answering some questions about their shopping experience.

  • Games: Using Gamification is an effective way to encourage costumes to share their data such as their product preferences with you.

  • Creating an account: This works best when you couple it with a tempting incentive such as a coupon or discount code.

  • Product recommendation: You can directly ask your customers to help you better serve them by sharing their preferences. For example, baby food and baby products brand Gerber asks parents to provide them with the most accurate info about their baby needs to help the brand offer the most relevant solutions.

When you base your marketing decisions on zero- or first-party data, you

  • Increase the chance of conversion.

  • Foster trust and loyalty among your customers.

  • Take the guesswork out of your decisions.

  • Create buyer personas for your business.

  • Increase marketing ROI significantly.

  • Supercharge your hyper-personalization strategy.

The power of personalization

Personalization is important for customer retention. Customers want to feel valued and a personalized offer is the best tool to fulfill their demand for exclusivity. If you're going to send out an offer, it's better not to make it generic; a customized message will increase the effectiveness of your campaign by creating more targeted ads or emails.

However, personalization isn't just about sending out offers once in a while — it can also be used to increase loyalty and repeat business! For example: imagine being able to track which customers spend the most money on particular days of the week or at certain times during the year (like right after Christmas). You could then send them coupons around those times so they'll be more likely to come back and spend money again!

personalization

A good loyalty program doesn't just create repeat customers: Chipotle uses the data gleaned from rewards members to figure out what they're ordering — what's popular and what might keep them coming back for more, it said.

“We are mining the data every day for insights, while leveraging the information to influence behavior and drive greater frequency. We are also working aggressively on greater personalization across the customer journey and obtained valuable insights on which incentives provide the greatest ROI,” CEO Brian Niccol said.

Building a loyalty program in the current trading environment

When solving the customer loyalty problem, many restaurants feel they need to go all in on one of two approaches:

😲 Surprise and delight: Using unpredictable rewards and discounts at random intervals

🔥 Earn And Burn: Customers accumulate and spend points consistently
For instance, fast casual chain Rubio’s recently announced it was moving to a points-based loyalty system. Rubio’s originally launched their loyalty program in 2019, promising ‘more rewards for more visits’. However, Rubio’s believes a lack of clarity meant customers weren’t using their loyalty cards. The brand hopes their recent change will better serve customers “in this time of inflation."

Meanwhile, regional fast food favorites like Texas’ Torchy’s Tacos, Montana’s Pickle Barrel or Dat Dog in Louisiana are still betting on their loyalty members. These programs run on flexibility, FOMO and a more personal touch than cold accumulation of points.

When businesses make this choice, they focus on what “feels right” for their brand. If it seems like there’s no correct answer, that’s because they’re asking the wrong question.

Effective loyalty programs pack plenty of personality, but they’re built on a framework of concrete business goals. Without the right metrics — and always tying your promotions back to which behavior you’re trying to influence — you’re flying dark. You don’t have a way to measure success and you don’t know if you’re getting value for your loyalty investment.

International chain Costa Coffee revamped their loyalty system this year. Instead of choosing between earn and burn or surprise and delight, they simplified. While re-orienting their program around concrete business goals, they focused on “simplicity and generosity”.

The result was hybrid: 

🔥 Earn And Burn? After buying 8 drinks, customers can choose any free drink, any size.

😮 Surprise? Costa’s app updates regularly with timed rewards.

🎂 Delight? Customers get a free slice of cake on their birthday.

This rebrand generated a £1.2m ($1.38m) in incremental profit each month. 60% of customers bought something else while claiming their free gift and 71% returned to Costa within a month.

Notice the difference? Restaurants going all in on “surprise and delight” or ”visibility and choice” are simply using active loyalty participation or business convenience as a deciding metric. Costa’s hybrid approach focuses on how their loyalty program directly impacts holistic business goals. 

Loyalty programs will be key for restaurants in 2023

Loyalty programs are going to be key to the future of restaurants. With inflation showing no sign of abating, more customers are relying on loyalty programs to fight the soaring prices. A recent survey shows two out of three customers said they downloaded restaurant apps to find out about deals and perks on their loyalty programs. 

With more customers demanding a seamless experience across restaurants’ online platforms and physical stores, it is expected that omnichannel loyalty programs will be able to move the needle for restaurants in 2023. For example, an omnichannel loyalty scheme enables customers to order online, receive points and then redeem them when they visit a restaurant (or vice versa).

Conclusion

Restaurant loyalty programs will be a key driver in the fast food industry in 2023. The brands that are most successful with their loyalty programs will be able to leverage their customer data and create more personalized experiences for their customers. By doing so, they will drive repeat business and increase profits while also delivering great value to consumers.
To discover how to take your loyalty program to the next level in 2023, check out Talon.One’s Definitive Guide to Customer Loyalty.

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David Hartery

Content Lead at Talon.One

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