3 Ways Your Traditional Restaurant Loyalty Program is Holding You Back

By Jon Greenlee, VP of Sales & Marketing, Sparkfly

Today’s quick services and casual dining patrons have evolved significantly beyond the restaurant punch card. Even with the influx of app-based loyalty programs over the past 10 years, many haven’t kept pace with evolving consumer preferences and tastes.

In 2022, 41% of millennials were members of restaurant loyalty programs compared to 31% of the general population. These are also the consumers more likely to order through a third party app, which means it’s even more important that restaurants design and distinguish their online experience for a more digitally-savvy audience. Today, it’s critical that your customer loyalty program build authentic connections with consumers of every generation, address changing consumer preferences post-Covid, and maximize value across the entire customer lifecycle.

I’ll share below how you can seize that value. But first, it’s important to take a step back and consider: is your current customer loyalty program holding your restaurant back? 

3 Limitations of Traditional Customer Loyalty Programs

1. They’re siloed and hard to properly measure.

While the pandemic drove customer loyalty programs into the purely takeout and delivery domain, consumers are back to eating in person more than ever. According to a survey of nearly 3,000 patrons in 2022, “44% of consumers now dine-in at least once a week or more, while 78% dine-in at least once a month or more.”

Restaurants must provide excellent experiences for both types of customers: dine-in patrons and those who opt for takeout. However, many restaurants decouple the online ordering and in-store ordering experiences, creating data silos for your restaurant. This makes it challenging to inform decision-making due to an inability to accurately gauge the efficacy of loyalty programs and campaigns across digital and in-person interactions.

In a customer acquisition cost-attuned marketing landscape, this then drives a perpetual cycle of under-investment that doesn’t account for the true value provided by your restaurant loyalty programs. That’s why it’s critical that restaurant loyalty programs provide equal value across both take-out and dine-in experiences by creating an integrated customer engagement ecosystem.

2. Traditional customer loyalty programs create unnecessary friction.

Whether it’s the dreaded wallet full of half-used and forgotten punch cards or the app so out of date that using it adds minutes to an otherwise rapid purchase, many customer loyalty programs get in the way right at the critical moment of purchase. Many restaurants with loyalty apps that are even just a few years old haven’t updated them to match the omnichannel purchase patterns of the 2023 consumer. Or, they heavily favor takeout or dine-in patrons at the expense of others.

Inefficient and poorly designed apps often require troubleshooting that falls on front-of-house staff who are already busy serving customers, bussing tables, taking orders, and generally providing the customer service experience for your brand. This creates an overall drag on the most valuable part of the experience – the face-to-face interaction between customers and employees – and can negatively impact other critical business metrics like table turnover.

3. Discount-driven instead of value-adding

Many traditional restaurant loyalty programs focus only on discount offers designed to meet short-term revenue targets. Certainly, inflation has kept discounts important– 86% of consumers are interested in joining a restaurant loyalty program if it provides discounts or coupons. But with third-party delivery apps, discounting will always be a race to the bottom. They have flexibility on operating costs that restaurants don’t, and scaled discounting built directly into their business model. Certainly, discounts are still an important part of any loyalty program strategy (more on that below). But when it comes to retaining and re-engaging existing users, think beyond discounting to providing real additional value that differentiates your brand and drives loyalty with your key customer segments.

Drive Engagement at Every Stage of the Customer Journey

The greatest shortcoming we currently see in traditional customer loyalty programs is that they’re only built to drive and measure performance at one stage of the customer journey, like transactions from new app downloads or repeat visits. This approach misses the opportunity provided by customer loyalty apps across the acquisition, engagement, and retention stages. 

Acquisition

Acquisition is the most expensive part of the customer journey, and for good reason: customers are so awash in new options that they have decision fatigue. Given the chance, 35% of American consumers said they’d prefer to return to a restaurant they know instead of trying a new place. The best and most cost-effective way to overcome this objection is to build a customer loyalty program that galvanizes word-of-mouth sharing and referrals. Not only are referrals the cheapest acquisition channel, they’re also the most effective: 81% of consumers made the decision to try a new restaurant based solely off the recommendation of a friend or co-worker, so it’s absolutely critical that you build sharing and socializing into the loyalty experience. For example, the popular pizza chain &pizza was able to drive over $1 million in incremental revenue in just 12 months by building a loyalty program that allowed members to accrue rewards for sharing and promotion in addition to purchase behavior. 

Engage 

It’s after that first experience and purchase with your brand where you can best deploy discounts and other personalized offerings. Customer loyalty activity tends to cluster after first downloading an app and then quickly drop off. The reason for that switching behavior is clear: the program didn’t offer enough immediate value to create a habit of repeated engagement. Sixty-nine percent of loyalty users have left or become inactive in a loyalty program because it wasn’t perceived as being valuable to them, while 49% say they will leave if they’re not given rewards quickly enough. It’s critical that you use discounts within the first one-to-three months that a customer joins a loyalty program to cultivate a long-term habit and preference.

Retention

When it comes to retaining customers over a longer period of time, customer loyalty programs really depend on personalization to drive value. That’s because Amazon-habituated consumers expect the same level of personalization from their other digital experiences: 91% of diners value a personalized customer loyalty program with 50% of them saying it’s very or extremely valuable, according to a recent national independent research study.

These personalizations can be based on a number of factors. Location is an obvious way to personalize offers, but clever restaurants go a level deeper and respond with takeout and delivery offers that correspond with large weather events in certain regions that would prompt their consumers to want to stay home and order in. Personalization based on personal preferences and details are also appreciated: one consumer described that “if it’s someone’s birthday and a restaurant has a free dessert or free appetizer, that’s a big factor.”

If your current restaurant loyalty program is missing the data to launch these kinds of personalized retention campaigns, not all is lost! All day cafe First Watch was able to incentivize 165,000 customers to update their profile with a $5 discount offer, laying the data foundation that’s driven a major uplift in rewards engagement.

These are by no means an exhaustive list of strategies and tactics you can deploy at the various stages of the customer journey using your restaurant loyalty program, but instead a starting place to shift and expand your current strategy. Once you take a full-funnel approach to loyalty, I’m confident you’ll be able to unlock value that previously seemed impossible.

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