As a marketing manager with Olo’s Professional Services team, I field questions from restaurants every day about setting up loyalty programs or fixing programs that aren’t working. Restaurant marketing teams often get a mandate from leadership to implement a loyalty program, and in their rush to comply, they overlook important considerations.
Starting a loyalty program can help drive guest acquisition and increase average order value (AOV). McKinsey found high-quality loyalty programs can increase the frequency of loyalty visits and the amount spent, boosting revenue up to 25% — but a whopping two-thirds of loyalty programs didn’t deliver value.
It is possible to offer a unique experience for your guests both in-store and digitally without investing in a loyalty program — for some brands the cost of starting and maintaining a program is simply not worth it. Loyalty programs also have blind spots, only capturing data from a small percentage of your guests and missing key insights like channel conversion or customer acquisition cost.
Loyalty programs are not a strategy, they are a tactic in your arsenal. When created with care, they can return big rewards.
So what are the pitfalls that make loyalty programs a burden for restaurants, and what are the keys to success?
How to set up a successful restaurant loyalty program
Don’t: Sink all your resources into loyalty
Do: Understand that your loyalty audience is only 10-15% of your guests
Loyalty programs are great at helping you identify your most engaged guests — but that’s not the full picture of who your guests are. Brands will sometimes make decisions based on data from the loyalty audience — like willingness to try a new item, for example — that does not hold true with their larger customer base.
Too often brands put all of their marketing budget and strategy into a loyalty program when they should be using other tactics, like creating targeted audiences with paid media. You’ll need to use these other tactics to reach a larger audience and attract new guests.
There are ways to reach a larger percentage of your customer base with strategic marketing, like new customer emails and specific segments for paid advertising.
Don’t: Forge ahead without talking to accounting
Do: Include all stakeholders in the process
Loyalty programs should not be built overnight—and the offers shouldn’t be, either. I’ve unfortunately seen brands get deep into a clever, well-branded loyalty offer only to have a panicked accounting team halt the plans because it would lose too much money or is otherwise not feasible.
Before implementing a loyalty program, think of everyone who needs to be involved: accounting, the tech team, and operators. Plan for how the loyalty program will affect reports and will show up on the POS. Figuring out these operational steps in advance will help loyalty run smoothly.
Don’t: Cheapen your brand
Do: Determine what works for your guests
When brands consider loyalty programs, they often look into what others in the industry are doing. While this is a great step to gain competitive awareness, it’s also important to understand that other brands’ guests may look very different from yours in terms of average order value, guest demographics, etc.
Many loyalty programs often offer blanket discounts to all loyalty members. This could lead to diminished value of your brand in your guests’ eyes and erode margins without making a meaningful impact to guest behavior.
Similarly, loyalty programs aren’t the place to make plays to buy back guests. While it may attract a guest in the short term, it cheapens your brand and doesn’t create sticky guests.
If your tech stack allows it, it’s worth testing a smaller group of your audience to see how their purchasing behavior changes in a loyalty program and the cost to the brand. This is a great way to see if your guests would even respond well to loyalty, or if you’re just handing out discounts to people who would be coming back anyway.
Don’t: Make loyalty complicated
Do: Surprise and delight
You don’t need to create a complicated loyalty program in order to gain the benefits of a loyalty program. Loyalty benefits shouldn’t be confusing for guests or costly for operators.
For example, let’s imagine a higher-end restaurant that may not want to offer discounts. Instead, they could create a segment of guests who ordered a certain bottle of wine at dinner, and send a “bespoke” followup email from the restaurant’s sommelier recommending three other bottles they might want to try next time. That creates a guest relationship without cheapening the brand.
So what does a good loyalty program look like?
I tell restaurants to follow one rule with loyalty programs: Keep it simple. Honestly, I’ve seen punch cards make a comeback with some brands!
At its core, a loyalty program creates a personal connection between the guest and the brand. Guests should feel like they’re a part of something, whether that’s access to exclusive menu items or the ability to skip the line during busy hours.
I personally love Chipotle’s loyalty program. Earn points, use points to redeem interesting items, and get gifted free chips every now and then. It’s simple and effective.
Restaurants can get more powerful insights from loyalty programs by working with marketing software like Olo Engage. Because your data rolls up to one place, you can easily see the difference between the dining habits of loyalty guests and regular guests. Engage can help you prove the value of a loyalty program in the boardroom.
In fact, you can also use this data to attract guests to the loyalty programs. An example I like is the “this could have been you” email. Identify guests who have visited a couple of times without joining the loyalty program and say, “You could have had 150 points and redeemed them for free dessert. This could have been you. But if you join now, you can get it next time.”
Loyalty programs started as a way to create a relationship with guests, and I think now people are being more selective and only joining the clubs they want to be a part of. Guests are asking themselves if they actually care about the relationship with the brand, or if they’re just getting irrelevant offers thrown at them. The best loyalty programs create a symbiotic relationship where everyone benefits.
To learn more about how to create personalized marketing at scale, request a demo of Olo Engage.
