A March study from PYMNTs found 51 percent of surveyed consumers (north of 1,800 were polled) reported using a restaurant loyalty program. Forty-nine percent were doing so at quick-service restaurants and 34 percent at sit-down brands. Just a year ago, the broad number was 45 percent, split 43 and 32 percent, respectively.

In simple terms, driving loyalty adoption has become the battleground of consumer share. That won’t slide in 2024 as digital systems mature and brands work to leverage data as currency. Additionally, it might be the clearest path to pulsing value during a time when the proposition feels muddy at best.

Yet what is the true definition of “loyalty” at this stage? How do you define engagement? What metrics actually matter? QSR caught up with Zach Goldstein, CEO and founder of Thanx, to dive into the state of the category, and what’s ahead in 2024.

I want to start with a question I know you’re passionate about: What are restaurants getting wrong when it comes to loyalty metrics? Or put differently, are they looking in the wrong places?

Enterprise brands with legacy platforms often focus on surface-level metrics—loyalty program sign-ups, app downloads, total members, or loyalty member average check. These metrics don’t reflect the true performance of the loyalty program—that is, whether it’s actually driving any incremental revenue or improvement to the bottom line. 

MORE: Are Restaurant Price Hikes Hurting Customer Lifetime Value?

For example, total app downloads can be very difficult to benchmark when you are anyone other than a large enterprise quick-service restaurant. A huge percentage of people who download restaurant apps use them once and then never log in again or worse, never even finish the loyalty sign-up process. Total membership is also highly problematic. The size of a database says nothing about how active those members are. It’s common to see databases with more than 75 percent of members who haven’t made a purchase or opened an email anytime in the last year. 

At the end of the day, getting sign-ups or an app download isn’t enough. This is especially true if the cost of acquiring a new customer is higher than your average check (which is true more often than it’s not).

What do the best programs get right?

The best programs measure loyalty performance in three main categories—reach, impact and cost.

• What percentage of my customers can I reach? 
• What impact can we have on my customers? 
• How much does it cost to make that impact?

Measuring performance in these three areas can be accomplished by tracking a few key important metrics. Reach can be measured by understanding capture rate, or the percentage of revenue attributable to loyalty members. The more revenue that can be influenced by the loyalty program, the more likely it is to move the needle for the business. Impact, requires understanding your customer funnel and how well the restaurant is doing at activating, engaging and retaining customers. Cost, measured in terms of effective discount rate (EDR), is the cost of the program as a function of the revenue generated by it, and must be considered alongside these other two metrics.

How would you characterize the state of restaurant loyalty today? What are restaurants doing that they weren’t, say, a couple of years ago? And where are the greatest areas for growth?

The digitization of restaurants and the increasing prevalence of third-party delivery have made the restaurant industry more competitive than ever. Now more than ever, building a loyal and engaged customer base is a must-have for long-term success.

Looking back at 2023, restaurants saw a shift in the importance of loyalty programs, and how they are being approached. Nowadays, loyalty programs are ubiquitous, and customers are searching for more meaningful benefits, that they can’t get anywhere else—perks focused on exclusivity, status, and personalization, rather than the traditional discount-based model. In turn, brands have a growing need to gather data to learn more about their customers and create a more personalized approach. 

One question I get a lot is how full-service and quick-service loyalty should differ. In some ways, with higher costs, I feel as though they’re closer today than they used to be (AKA, experience is a draw for both sides versus just straight discounts). What is your take on that?

I recommend that restaurants build a loyalty program strategy based on the specifics of their business, their brand, and their goals. 

Generally speaking, implicit programs work well for exclusive or high-end restaurants as they often rely on the overall experience and exclusivity to attract and retain customers. While implicit rewards can contribute to a sophisticated and exclusive brand image, they are limited in their ability to drive outsized impact in a highly competitive market where customers have alternatives with explicit rewards programs.

More broadly, full-service restaurants often use loyalty programs to deliver an even more personalized and attentive dining experience. Loyalty programs need to reward more than just visits, incorporating rewards based on the amount spent and customer preferences. Non-discount rewards such as exclusive events, i.e. special tastings or chef’s table experiences, or VIP-only seating can work well in this environment. Some full-service loyalty programs adopt tiered memberships, offering escalating benefits to customers based on their loyalty. Additionally, feedback mechanisms, such as surveys, are common for gathering insights and enhancing the overall dining experience.

On the other hand, quick-service loyalty programs must prioritize speed and convenience. These programs should be designed to be simple and easy to understand, catering to the fast-paced nature of quick service. Perks like priority in-app ordering for example, can contribute to a frictionless and efficient customer experience. More important now than ever, digital integration, on both mobile apps and (importantly) web play a crucial role in facilitating seamless transactions. While it’s often thought that loyalty programs in quick-service establishments must feature discounts (i.e. buy-one-get-one offers or free items) to be successful, I actually recommend that all restaurants incorporate non-discount rewards such as secret menus, exclusive swag and other highly personalized experiences that are aligned with the brand narrative. 

Tell us about “Engaged Customers” and how restaurants can really tell if their loyalty program is working.

Thanx defines Engaged Customers as loyalty members who have made at least three purchases and at least one purchase in the last 90 days. Tracking the health of your engaged customers is the crux of understanding if your loyalty program is working. While there are many ways to measure how engaged your engaged customers are, the most comprehensive and unbiased one is “Average Monthly Value.” Average Monthly Value tells you how much revenue on average your engaged customers contribute monthly to your business. Put another way, it’s your engaged members average check multiplied by their average monthly frequency. AMV goes beyond frequency lift or spend lift to tell you how often your engaged customers visit and how much they spend on average.

More broadly, give us your thoughts on what the big loyalty topic for 2024 will be.

Frequency, frequency, frequency. The last several years have seen many restaurants raise prices to combat rising costs and inflation. As a result, most brands have seen growing top-line revenue post-COVID. But underneath that rosy exterior is a harsher reality; restaurants are experiencing flat or declining “traffic.” Proof that loyalty is driving frequency—this will differentiate winners and losers.

To that end, I think we will continue to see the digitization of modern restaurants. I expect more kiosks and other forms of in-restaurant digital purchasing to accelerate with a result of far larger CRMs. The centralization of data-driven marketing will become essential, streamlining operations, and providing brands with easily accessible, comprehensive data to guide decision-making.