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Why a Restaurant Loyalty Rewards Program is a Great Marketing Tool

Most businesses seem to focus the majority of their marketing efforts on attracting new customers. There's no denying the importance of building your customer base, but not showing your current, loyal customers some love is a big mistake. In just about any business decision, compare to how you feel when you're the customer to help guide your choices.

A restaurant loyalty rewards program helps you engage with the quality customers you already have and keep them coming back. That is the key to long-term success.

Loyalty is Important for Your Bottom Line

The nature of attracting new customers – typically in the form of promotions offering free and discounted items – automatically makes them more expensive than programs designed to retain your current customer base. How much more expensive? Well, estimates vary widely, but the Harvard Business Review says the lowest estimate is five times the cost of maintaining current customers.

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In addition to the lower cost of marketing attempts to improve customer loyalty, increased retention also increases profits. A report by management consultant firm Bain & Company claims that a 5 percent increase in customer retention leads to lifetime profit increases between 25 and 95 percent.

Your loyal base is also your greatest resource for finding new customers, as happy customers refer friends and family to your restaurant. Again, consider your own behaviors. When you find a business that you love, with a courteous staff who remembers you, takes care of your needs, and makes it clear they appreciate your business, you tell people. Your customers do the same.

Compare these profit gains to those earned with promotions designed to attract new customers. You will see a bump in diners cashing in free appetizer coupons, or whatever promotion you implement. The question becomes: what happens after the promotion ends? You may retain some of these customers, adding them to your loyal base. Far more of them, however, are so-called bargain shoppers, basing their purchasing decisions on price, not brand loyalty. That doesn't mean you should abandon these efforts, only that you should realize that a temporary uptick in promotion-based profits is just that, temporary.

So, how do you focus promotions on current customers? Data analysis is the key to developing a loyalty rewards program to improve customer engagement, with targeted, personalized offers.

Loyalty Marketing Influences Behavior

The effects of loyalty marketing aggregate to significant gains. Customers who participate in loyalty rewards programs with personalized communication report spending more at that restaurant. You can track this spending using RFM analytics. The basis of this analysis is the 80/20 metric: 80 percent of your business comes from 20 percent of your customers.

RFM stands for recency, frequency, monetary, and analyzes how recently a customer visited your restaurant, how frequently their visits include purchases, and how much the customer spent. To take advantage of the 46 percent spend increase loyalty programs offer, you need a clearly-defined program designed to meet your base's needs.

You have other options to determine reward program success. The customer retention rate indicates how long your customers remain with your restaurant. Negative churn measures how many of your customers remain, as well as how many increase their purchase amounts. The net promoter score measures how many of your diners would recommend your restaurant to others, by subtracting the number who would not recommend you from the number who would. Shoot for a score over 70 percent.

Tips for Success

Develop a promotion strategy around your loyalty reward program, then communicate the benefits to your program's members on a variety of platforms: in-store, on your website, via email, direct mailers, through social media, and at the time they place online takeout orders.

Start your communications as soon as the customer joins your program, reaching out via email or text. You can also set up automatic messages to occur after a set number of visits. For example, after five visits, send out an offer like, "Buy two or more meals on your next visit and get $6 off!"

You may choose to offer bonus points for referrals, social media shares, and more. Design your program around this point system, typically based on dollars spent, with a reward for every time a customer hits a certain milestone. A great option is offering freebies on low-margin items.

Today's tools and technology make analyzing customer retention and behavior easier than ever before. At the same time, your customers have never had more restaurant choices. Demonstrate how much you appreciate that they choose to dine with you, and they'll return the love with repeat business.

Author: Angela Escobar

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