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Offering free appetizers or drinks as rewards for loyalty can be great ways to draw in repeat traffic.

How to Start a Customer Loyalty Program

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Offering effective rewards can keep restaurants afloat in a tough market.
By Arnab Mitra September 2017 Expert Insights

According to National Restaurant Association (NRA), food and beverage sales in U.S. full-service restaurants has increased by over 40 percent since 2009. And as of 2016, food and beverage sales are at $259.21 billion—yes, you read that right. Americans love to eat out.

With sales expected to continue to increase in the coming years, the opportunity for more restaurants opening rises. Many cities and towns are already filled with restaurants, but everyone wants a piece of the $259.21 billion pie.

So in light of the increased competition, full-service restaurants need to focus on securing their loyal customer bases and creating differentiated experiences to attract new customers. One method would be to develop a customer loyalty program. A customer loyalty program is a marketing strategy business and organizations use to retain loyal customers and attract new customers. As a result, restaurants can strengthen their future success by continuously driving in revenue from their most loyal customers and increasing new revenue channels.

Where to Begin?

The goal for a restaurant is to increase customer retention so that there is a baseline revenue that can be expected every month. With costs increasing for labor, equipment and more, securing a strong baseline monthly revenue can help ensure long-term success.

Restaurants are already beginning to feel the heat of increased competition. From September 2016 to January 2017, 60 full-service restaurants closed in the San Francisco-Bay Area alone. Just imagine how many restaurants closed nationwide in that 4–5 month period.

To focus on a customer loyalty program, there are two things that your loyalty program should encourage. The first is to have customers increase their spend per visit, and the second is to encourage them to visit multiple times per month or week. To encourage both items, I recommend you reward your customers for every purchase they make by giving them points. You can either provide points per dollar spent or provide a set number of points based on their purchase amount—choose the option that best fits your customers and restaurant. 

And rewarding your customers with points doesn’t need to stop at purchases, create all-around engagement by building a customer community. In a customer community you can encourage your customers to share their experiences on social media, invite their friends to the program and other activities; in exchange, customers will receive points. By building a customer community, your customers stay connected with your restaurant even after they leave.

What Will Customers Do With All These Points?

So your customers are just racking up the points, but what’s the incentive for them to keep earning points? You will need to make the loyalty points redeemable for gifts.

But don’t just choose any random items to gift. I recommend providing gifts that are important to your customers. Before I get too far into recommendations, I do not recommend for any restaurant to provide generic gift cards for Visa, American Express, and Amazon. I always recommend providing gifts that are within your business so customers must come back to use them at your restaurant.

There are two types of gifts I recommend for full-service restaurants:

Option 1: Discounts off Purchase

Provide a discount off a customer’s purchase, whether it is for this purchase or the next one. If one of the goals is to encourage spend per visit, incentivize your customers to spend more. For example, if a customer runs up a bill for $25, offer a 10 percent discount if they spend $35. The jump in the total bill is 40 percent, so providing a 10 percent discount will still provide your business with high margins.

And if your goal is to increase the number of visits per month, run time sensitive discount promotions, encouraging customers to come back sooner than later. For example, offer your customers a reward for coming back in the next two weeks, such as  receiving a 15 percent discount on all orders of $50 or more.

Option 2: Free Appetizers And Desserts

List customer favorite menu items to be redeemable. Typically our clients list a few customer favorite appetizers and desserts because these are high margin items, but leave customers feeling happy and satisfied.

What Your Program Should Be Focused On

One of the major keys to a successful customer loyalty program is that the program should be focused on customers. Thus, the program should be:

1.Completely Integrated

Customer loyalty programs should be fully integrated into each customer touch point, creating an omni-channel experience. So when a customer visits your restaurant, website or mobile app, their experience with the loyalty program does not change.

2. Addressing Customer Pain Points

Each restaurant has its own pain points. For your restaurant, it could be in-store customer service experience, where customer seating times are high. One of the benefits of the customer loyalty program could be for your loyal customers to be seated right way, providing a VIP treatment.

3. Providing Meaningful Rewards

It isn’t enough to provide all customers with rewards. The rewards should have a meaningful value to each customer. Understanding customer buying habits can help tailor rewards to each customer type.

According to a Bain & Company study, roughly 60– 80 percent of customers do not return to do business, including customers who had a positive first experience. The problem is customers nowaday have so many choices to buy the same or similar products elsewhere, and, as a result they don’t need to come back to your business. With so many restaurants in the market today, how can you separate yourself? But with a successful customer loyalty program, your restaurant creates a unique connection with your customers, enticing them to re-visit.

Arnab Mitra is a marketing strategist, experienced in working across various industries. His background includes stops at two Fortune 500 companies. He is now the marketing manager at SailPlay, a customer loyalty platform.