Pros and Cons of Restaurant Loyalty Programs

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Restaurant Technology

Pros and Cons of Restaurant Loyalty Programs  | Restolabs
May 29, 2019

How do you reward your best customers? They order from you once or twice a week, dine at your restaurant at least twice a month and recommend your food to friends and family -  they are your true and most effective brand promoters. So we ask again, how do you make your loyal customers feel valuable? Howard Schultz, Starbucks’ CEO, said, “If people believe they share values with a company, they will stay loyal to the brand.”

Did you know engaged customers visit their favorite restaurants 56% more each month?

Many restaurant owners choose to implement loyalty reward programs to engage their customers and turn them into returning customers. For instance, customers earn points for each purchase they make and then get a discount or products after they've spent a certain amount. Based on your business’s capacity, you can personalize your program to benefit you and your customers.

Source: Slideshare

 

However, implementing a loyalty program successfully is an expensive and time-consuming project. But if you don't include this in your marketing strategy, you might lose your business to competitors who do. 

Let’s examine the pros and cons of restaurant loyalty platforms in order to know whether a reward program can help you achieve the results you desire.

PROS of Loyalty Programs

Customers feel appreciated

...and when they do, you have a sustainable business model. Retaining customers and giving them a reason to continue doing business with you is of utmost importance if you want to build a profitable business and this can only be done if you incentivize them regularly for their effort. Statistics have shown that increasing customer retention by just 5 percent can increase the bottom line by 25 to 95 percent.

Higher Cart Value

Loyalty programs use data to cross-sell and up-sell. This ensures extended warranty that once the customer has purchased the item of interest, he/she will be tempted to add more in order to take advantage of their loyalty program benefits. 77% of digital natives are willing to pay a premium to participate in a loyalty program if they will be rewarded with valuable perks.  

For instance, Dominos suggests adding Garlic Bread and Soft Drinks at the checkout at a relatively lesser price compared to what the customer would have paid had he/she would have made the purchase individually. Such targeted promotions are prone to yield more satisfactory results.

Enables Targeted Promotions

As soon as a customer signs up for the loyalty program, the system begins recording information about them in the database. The next step is to then profile the customers on the basis of their behavior, buying habits, and preferences. You may use this information to provide tailored offerings and special promotions to customers from whom your company generates the most profit. This is called customer segmentation.

Shortcut to Brand Promotions

Reward programs provide a strong branding opportunity. Creating assets like loyalty cards with your brand's logo and colors can spread awareness of your brand and help new customers differentiate between you and your competitors. You can also try adding a bit of fun to the process by offering unique incentives like "get yourself featured on our Wall with your 50th purchase". Such tactics are achievable, as well as work as a good strategy to put your restaurant on the map.

You can promote your offerings on social media and newsletters to encourage your customers to produce user-generated content related to your loyalty program. For instance. The more your loyalty database grows, the more you can use it as an opportunity to publicize your brand and connect with new customers.

CONS of Loyalty Programs

Loyalty programs can be costly

Implementing a reward program successfully can be expensive. Giving away high discounts or too many products under the reward system can hurt your business's finances. Even if the customer retention is good, there's no guarantee that you'd be making a profit. You may need to pay to the software provider or a third party to administer the program itself. What you need is to conduct a proper research to create an effective and balanced reward system that not only helps you increase repeat purchases but also recoup any losses.

Complexity Causes Confusion

Not only does setting up a loyalty program takes time, but if done wrong, can turn your customers away. First and foremost thing is to ensure that your customers are able to understand the program. According to Statista, 34% of Millennials don’t join a loyalty program because the enrollment process is too long. Given that, it is important to note that the entire process should be easy, transparent and truly rewarding. 

Once your customers have become accustomed to how the program works, you could add more functionality to create something that is distinctive. However, it’s important to remember that a successful loyalty program is SIMPLE!

Market Saturation

There are many loyalty programs being offered by online as well as offline establishments. On the ground level, they all appear identical with similar membership structure, discounts, reward systems, and benefits.  If you’re going to invest in a loyalty program then it’s important to design a scheme that is distinctive and unique to your brand.

Understanding the pros and cons can help you avoid mistakes and develop a program that will be truly rewarding for your customers and your business.

With many restaurants coming up with customer loyalty apps, it is not always easy to stand out and to be perceived as unique. It is an investment that you should make only after figuring out how you can position yourself distinctively - different from others while also staying true to your brand values.

If you dedicate your time and efforts towards getting your loyalty program strategy right, it can be the most valuable tool for your restaurant business. Before you dive right in, conduct informed research and have a solid strategy in place.

 

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