You go to the restaurant. You eat the food. You like the food. You tell your friends. You go back to the restaurant. And if they know your name when you return, well, cheers, right?
Why then, do only seven of the top restaurant chains in the United States bother to have loyalty programs?
Typically, industries with high purchase frequency and stiff competition — like airlines, hotels and grocery chains — adopt loyalty programs. For grocery chains, participation is at 65%; for medium-size and larger hotel chains, 85%; for the major airlines, 100%. Restaurants fit the bill — high-frequency patronage and stiff competition. (There were 858,000 restaurant establishments in the United States in 2004, up 14,000 from 2002.)
Because loyalty programs are measurable, many independent restaurants have been able to demonstrate success.
For the Fifth Group Restaurants of Atlanta, for example, members spend 17% more than before they joined the program. Spectrum Foods’ Table One program in San Francisco increased average sales among their 15 restaurants by 10%. And The Palm’s 837 Club is garnering terrific return on investment.
“Eighteen percent of members say they hold private parties at Lawry’s, which they never did before becoming members, because of the points generated,” says Karen Zaniker, who handles marketing for Lawry’s Restaurant in Pasadena, CA. And customer demand is documented: In a quantitative 2004 study by the National Restaurant Association, 50% of table-service customers said they’d be more likely to patronize a restaurant that had a loyalty program. So why the low adoption rate?
Little loyalty program experience crosses over into the restaurant industry from other fields, since most restaurant marketing executives tend to have grown up in the business. Chances of loyalty program adoption are slim for those without hands-on experience with the ins and outs of such endeavors. Further working against adoption is that loyalty programs are, by definition, a long-term investment. Conversely, familiar, short-term marketing expenditures — even very large ones for print and television advertising — inspire no fear.
Loyalty best practices determine a rewards program’s return on investment by analysis of program economics. This is based on a chain’s set of financials, including generation of an affordable rewards structure, analysis of profit margins and projection of increased revenue. So, other than an occasional seminar, the main source of a marketing executive’s exposure to the reassurance of a positive ROI would be through loyalty vendors. But too many of these aren’t focusing on a restaurant’s business, but on pushing technology solutions.
Without evidence to the contrary, “They’re just going to say it’s just not worth the effort or expense,” says Ron Santibanez, president of Qualified Solutions Consulting, a Moreno Valley, CA firm with many small restaurant clients.
Another concern is the widespread perception that loyalty programs’ up-front cost is large, even though there might be a good possibility of a decent ROI. Says Santibanez: “It’s an investment in time, but moneywise, it can be done inexpensively.”
Benihana has shown, with its successful Emperor’s Club loyalty program, that one can start small and scale up as the program proves itself. Not only that, says vice president for marketing Kevin Aoki, “We focus on the restaurants that really need the program first.”
Another financial fear is the perception that loyalty programs are nothing more than discount schemes. Zaniker explains the purpose in other terms: “It’s to increase frequency, spending, the likelihood to recommend and reduce attrition over the long term.”
Some loyalty programs have no discounts at all, focusing on so-called “soft” rewards — recognizing guests on arrival, guaranteed reservations, preferred seating and the like — costing nothing but carrying high value for guests. As John Clapps, consultant at agency Brand24, points out: “It’s an emotional rather than a physical benefit. I think it’s not what the people are getting in terms of hard goods, but that you know them and appreciate that they’ve been there.”
For publicly owned chains, the fear of having a large number of points on their books that are subtracted from revenue numbers is a deterrent. But loyalty programs can be structured with expirations or “soft” high-value/low-cost rewards that mitigate this kind of exposure.
Marketing executives often have their hands full enough as it is, so their initial reaction to considering a loyalty program is “Oh my God! Not something else to do!”
“If I hear something like that,” reacts Benihana’s Aoki, “I ask, ‘Do you want to know your customers better?’ Obviously, if you’re in the restaurant business, you need to get to know your customers, and you can’t do it better than with a program like this. As marketers, we should continuously see what’s new out there, and if it works well with the system it should be considered.”
Because loyalty programs are inherently multifunctional, marketing has to ask operations and IT to add more to their plates. Gaining cooperation across functions requires extra effort. After all, you don’t have to get operations to approve your TV commercial. But wait staff and local management are critical of loyalty programs. IT doesn’t approve your print ad. But they’ve got to manage your loyalty program’s customer database. And you need top management support. Says Melissa Wilson, principal at Technomic, a research and consulting firm serving the restaurant industry, “Loyalty programs have to be embraced through all layers of the organization.”
Then there’s the issue of time. Loyalty programs are long term. But some 67% of the top 130 chains are public companies, driven by the short-term demands of quarterly results. Add to this the general prevalence of short-term thinking in marketing. “A lot of marketing folks are very much event-driven,” says Jim Vanderholm, president of restaurant CRM services firm Paradigm Solutions. “They look at everything as a six-month project. And this isn’t.”
A primary objective of loyalty programs is retention. But this is at odds with the major chains’ marketing focus on acquisition. “It takes forward thinking. And companies just figured if they kept marketing on the front end, it didn’t matter who was leaving on the back end,” says Marilyn Coffey, vice president of marketing services at Fishbowl, a CRM supplier to restaurants.
Network
