Full-service restaurants recognize the importance of customer loyalty, but they occasionally jeopardize it in their ongoing efforts to attract new diners. While owners and managers do need to focus on new business, two other opportunities are just as deserving of their attention: how to maintain and please existing customers as they try to attract new ones, and how to keep all of their customers coming back. A “turnstile approach” — amassing large quantities of customers — makes sense for sporting and concert events where success is based on the number of tickets sold, but it takes more than that for full-service restaurants to assure continued growth. That’s why concentrating on engaging quality customers inside the restaurant and maintaining that engagement after their dining experience ends is essential to a restaurant’s operational success.
The Importance of Loyalty
Flowtown, a social marketing blog, conducted a survey that illustrates why existing customers cannot be taken for granted during a new customer outreach campaign. The dual priorities of retention and acquisition and the value of each were put before 300 “market leaders.” Based on survey responses, the costs of attracting new customers were estimated at six to seven times that of maintaining the current customer base. The survey majority agreed that retention through customer loyalty programs reduced attrition and even increased referrals — always an important benefit for every full-service restaurant.
Here is a glaring example of what can happen when loyal customers feel their loyalty is being taken for granted. A fine-dining chain recently participated in a heavily advertised promotion designed to attract new business. The promotion did bring in more customers for one unit of the chain, but many of these new customers did not return. Even worse, repeat visits from existing customers of that unit declined significantly, and all ratings were well “below average” during the campaign. The reason: the unit focused more on new customers and did little to keep its existing customers happy. Existing customers were challenged by longer wait times for tables, a degradation of service due to the volume of people seated, inconsistent food presentation, and so on.
Contrast this experience with another unit in the same chain. That unit focused instead on improving quality of service and food rather than the number of first-time customers. The data showed that the focus worked to produce more return visits, especially from existing customers who gave positive feedback in their post-dine reviews.
Loyalty that influences frequency occurs when customers identify with a dining establishment. Limited time offers or receiving a free appetizer can be leveraged to increase traffic, but these tactics are not enough to sustain loyalty and customer engagement. Spending marketing dollars on discount promotions may get people in the door, but those customers are often not likely to return until they see another advertised discount. This structure is a surefire way to attract bargain hunters who are indifferent to brands and are, therefore, less loyal. They base their purchasing decisions solely on price, whether they’re selecting a full-service restaurant or a grocery store.
So how should full-service restaurateurs seek loyalty and engagement? The answer is to analyze customer behaviors and other customer attributes, then to organize and segment that data into homogenous groups with “like needs,” and finally to develop promotions that contain targeted and personalized offers that are designed to be more relevant to each individual.
RFM: Measuring Customer Value to Achieve Growth
One effective way to measure customer engagement and to help identify “high potential” segments for marketing investment is to introduce an RFM (recency, frequency, monetary) value scoring system. RFM offers invaluable customer insight that can be leveraged to help a loyalty rewards program succeed. The RFM scoring model organizes member segments for more effective marketing and the development of more relevant and individualized communications. Statistics generated by an advanced RFM scoring system enable a restaurant to base its communications on the likelihood of return visits and additional spending realized by different segments of customers.
The RFM scoring system assigns a value to each customer, providing a picture of individual purchasing behavior. The goal is to create motivational offers and messages intended to influence a customer’s behavior, thereby increasing the frequency of return visits as well as per-visit spending. Once the data has been scored and individual patterns determined, the restaurant can develop its marketing communications plan with incentives relevant to each customer segment. The messaging is targeted, relevant, and personalized down to the individual.
RFM values form the foundation for segmented and targeted messaging by enabling restaurants to communicate one-to-one with each customer. The scoring creates the basis of individualized customer communications through e-mails, SMS messaging, or social media. This is a far more effective outreach than the “shotgun” approach of generic blast emails, disseminated with the blind hope of generating customer response.
The idea is to influence behavior through customer loyalty. The effects can be significant. The research firm Deloitte reported that a 5 percent improvement in customer loyalty can increase lifetime profits per customer by as much as 95 percent. Furthermore, 70 percent of customers who participate in loyalty programs report purchasing more. The key is a personalized communications program formulated through specific and applicable data.
The need for specialized incentives becomes quite clear thanks to RFM analytics. Research studies on loyalty report a 46 percent increase in customer spending at businesses with loyalty programs designed to influence ongoing purchases and encourage more spending. The key word here is designed. A customer receiving marketing communications implemented without RFM analytics is unlikely to view the message as relevant.
The statistics from all these sources are solid. A strategy to stay ahead of the competition is incomplete without some type of loyalty rewards program that lets customers know the restaurant values them as individuals. A loyalty program defined so clearly that customers feel it directly meets their needs has been proven to increase return frequency and the likelihood of greater spending.
There are a number of tools, RFM modeling in particular, at a dining establishment’s disposal to facilitate an effective and lucrative rewards program dialogue from the digital world to the web and smartphones. It is critically important for restaurateurs to choose the tool that best helps them understand and accurately measure their customers’ perceptions and preferences. By taking each customer’s pulse through analytics, accurately reading it, and responding accordingly, full-service owners and operators can positively influence behavior in a way that keeps customers coming back and gladly opening their pocketbooks.
About the Author: Megan Flynn is the Senior Vice President of Loyalty and Business Development for Rewards Network in Chicago. Rewards Network, with 3.2 million active members, offers dining rewards programs at thousands of participating restaurants based on targeted marketing, incentives, and business intelligence. For details, call 866-659-3463 or visit rewardsnetwork.wpengine.com.