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    How to Increase Retention with a Loyalty Strategy

  • Loyalty is driven by the quality and consistency of the food and experience.

    Dunkin'
    If Dunkin’ can convince a customer to do their “coffee run,” chances are good that customer won’t also be going elsewhere.

    Quick-service restaurants are businesses that depend on high volumes of low-tick transactions. Winning new customers often comes down to convenience and location and location comes down to proximity to someone’s home or major roads and highways to capture customers who are traveling when their hungry. Loyalty is driven by the quality and consistency of the food and experience. Quick-serves sustain their business by delivering on those two things to encourage repeat frequency of trips among customers.

    Speaking of frequency, many quick-service brands enjoy the benefit of creating routines among customers. Mealtimes and coffee breaks are standard and recurring times in a typical day. Marketers have an opportunity to compete for those routines among their customers. If Dunkin’ can convince a customer to do their “coffee run,” chances are good that customer won’t also be going to Starbucks.

    On the other hand, quick-serves also think a lot about increasing average order size. On a percentage basis, having somebody “add fries with that” can increase the order size by double-digit percentage points. Quick-service restaurants want to maximize all upsell opportunities, which are most typically done at the counter during checkout. However, a well-crafted loyalty program can also address upsell opportunities in ways that reduce the reliance on impulse buys by customers at checkout.

    Given the need to drive customer frequency and order values, quick-serves tend to lean hard on their loyalty programs and mobile apps to bring home the bacon. While mobile apps and loyalty programs are distinct, they are both critical parts of an overall loyalty strategy. A brand’s most loyal and frequent customers are the consumers most likely to download and use a quick-service restaurant mobile app. Lots of customers will use a loyalty program even if they don’t use the app. However, the lines can be very blurry for consumers who may need to use the mobile app to access the loyalty program. Furthermore, brands will often need to enhance the value of a mobile app by incorporating incentives and offers. And if those offers are not thoughtfully managed with the loyalty program in mind, the value propositions for new and loyal customers can get diminished at the same time.

    The question many brands ask is whether loyalty programs exist to reward loyal customers or to buy the loyalty of certain customer segments with offers to manipulate their behavior for increased ROI. One could argue that both arguments are valid. However, in the former, what’s the benefit of a loyalty program that doesn’t provide incremental benefits in terms of greater loyalty? Most would say very little. Providing offers to regular customers who would have bought anyway is a hard decision to rationalize for any business leaders. In that situation, brands might start rationalizing the loyalty program as a way to protect the customers they already have against competition. The fear of losing can be a stronger motivator than the possibility of an opportunity gain.

    Another way to rationalize a loyalty program is the ideal of truly “understanding” a customer, even if that program doesn’t deliver incremental business results. There’s no doubt that a loyalty program provides a scalable mechanism to capture consumer data and track ongoing engagement and spending. However, most quick-serve brands have a much lower loyalty program adoption rate than grocery retailers, for example. So, at best, a quick-serve brand will know a lot more about a small subset of its customers and the same amount as before for everybody else.

    Even if the cost/benefit analysis for a quick-service restaurant loyalty program isn’t overwhelmingly positive, many brands are under pressure to implement something. It’s important for brands to step back and define what loyalty means for their business based on the expectations of their loyal customers. For example, market research continues to show that quick-serve customers want the following benefits within one holistic experience:

    1. Value
    2. Quality
    3. Convenience

    Dollar menus are great at addressing No. 1. But if the mobile app is buggy, lines are too long, bathrooms aren’t clean, customer service is poor, and it takes forever to get served, the brand is screwed. Loyalty program gimmicks around points, coupons, deals, sweepstakes etc. won’t save a brand’s loyal customers if these other things aren’t executed well. Brands need to remember that loyalty is an outcome of nailing the basics. It’s not an input. It’s not a way to distract customers or buy their business and hope they let you get away with lacking solid fundamentals. Customers are too smart.

    A well-structured loyalty program can be phenomenal at accelerating devotion among all segments of customers if the operational basics are already being done right. Loyalty programs can’t replace shoddy execution. The best loyalty programs focus on reinforcing all the key components of customer expectations mentioned above. Albeit hard to execute, the ultimate prize will undoubtedly be very rewarding for brands and customers alike.

    Since co-founding RevTrax in 2008, Jonathan Treiber has passionately championed greater measurement and accountability for online and offline marketing, guiding his company from initial product development to capital investment, revenue growth, and continuous innovation. He now leads a team of seasoned professionals and up-and-coming rockstars at RevTrax, who today proudly works with more than 350-plus leading brands across a variety of verticals. Prior to co-founding RevTrax, Jonathan worked at Citigroup’s Investment Banking Practice. He holds a Bachelor of Arts in Economics, with distinction, from Cornell University. Jonathan lives in New York with his wife and two daughters, and loves rock and roll.