The use of a gift card or coupon touches only about 12 percent of customers, Lipp says. It is a niche payment device that might spike around the holidays but stays at a relatively low percentage. He says about 80 percent of gift cards are “use and toss,” with the user often discarding them when finished. However, a loyalty program that makes offers to customers for a future visit can have a bounce-back of 3035 percent. For example, the restaurant can print a reward or offer on the customer receipt at the time of sale offering a free drink or dessert on the next visit. This encourages the customer to return sooner than they might have otherwise.
Lipp says restaurants should view a loyalty program as a means to a greater end: increasing communication with customers in order to build a marketing relationship with them.
“By leveraging the investment in [existing] infrastructure, an operator can increase their penetration into their customer base,” Lipp says. “What we have done is transform that technology from a payment play to a marketing and tracking play. By getting customers to identify themselves at the point-of-sale, we can obtain tracking data. Think of the downstream opportunities this presents.”
From 20052010, stored value transactions are projected to grow 11–30 percent, while cash transactions shrink to 28 percent. “This is a marketer’s dream,” Lipp says. “If you can get your hands on the data, you can be a lot smarter. A CMO can have one-on-one communication with each customer at the POS for the first time. Then, they can make a targeted offer to that customer to make an incremental sale. This can move the needle [on sales.]”
The technology that facilitates loyalty programs can sort and segment a customer base and alleviate the tedium of calculating points and rewards. The system automatically knows which customers qualify for rewards. Some systems can also flag infrequent visitors and offer them an incentive to come back sooner.
“You have to ‘wow’ customers in small ways,” Lipp says. Other ways might mean enticing customers back by offering double-points on certain menu items or during off-peak periods, for example.
Broadening loyalty programs to include cellular telephones as a payment, marketing, and loyalty device is the goal of MobileLime, of Watertown, Massachusetts. Instead of issuing a plastic loyalty card, the retailer uses the customer’s cell phone number as a personal ID number. Once the number is entered into the system, customers can receive text messages on their phones about events and special offerings along with coupons. With a cell-based program, restaurants can text message a customer to remind them that they are at or near the rewards level.
“There are over 200 million cell phones in the U.S. and the numbers are growing,” says Robert Wesley, president and CEO of MobileLime. “This is a rapidly growing number, especially in the youth market.”
Wesley notes that some companies are now marketing cell phones directly to young adults. There are even phones designed for easy use by eight-year-olds. To this demographic, the use of text messaging is routine. In the second half of 2005, about 48.7 billion text messages were sent.
The administrative tasks associated with card-based programs make the use of a cell phone an interesting alternative. Welsey says enrollment is quicker, and costs are lower. “The costs are a fraction what card-based programs are,” he says. “There are no lost cards and administrative hassles of making plastic cards are eliminated.”
Wesley says that one reason the quick-service segment is so slow to embrace loyalty programs is the challenge of executing it with staff. Many operators want to be in the loyalty space but cannot count on some employees to sell it. “We simplify it on the front end for operators and we make it fast,” says Wesley. “Any program has to be simple and straightforward.”
At Potash Bros. Markets in Chicago, customers are quick to remind cashiers that they are members of the MobileLime-administered loyalty program.
“This is a good sign,” says Art Potash, owner and vice president of the upscale Chicago grocery chain. “When customers come in looking for it you know it’s a good program. They want those savings.”
Potash says the loyalty program gives him a better sense of his customers. In addition, he says the loyalty program is something the company and staff can rally around. The text message capabilities of a cell phone-based program provided one-on-one communication with each customer.
“This is a high-tech way of going after our customers,” says Potash. “This could be the tip of the iceberg in marketing and increasing our bond with our customers.”
Maintaining that bond entails keeping the loyalty program fresh by changing the rewards at periodic intervals and keeping in mind that offering regular discounts could skew the customer’s perception of the brand. When paying full price, some consumers feel they aren’t getting full value for their money.
“One lesson we learned was that we didn’t want our loyalty program to become just a discount card,” says Nick’s Calabrese. “Greater rewards instead of straight discounts give our program a higher perceived value. Our guest needs are changing so we are evolving the program. That’s why we are going to give away trips and other rewards that will make us stand out.”
A guest that isn’t just looking for a discount but returns again and again, and a merchant that rewards that faithfulness, is what a loyalty program is all about.