Loyalty programs have been one of the biggest trends in restaurants over the past few years. Here at Restaurant Business, it seems that we publish a story about a program being tested, tweaked or launched every other week.
The reasons behind the loyalty boom are pretty simple: Restaurants value frequent guests, and even more than that, they value their data.
“Everything now is driven by data,” said Stowe Shoemaker, a professor at UNLV's William F. Harrah College of Hospitality who has done extensive research on loyalty. “The more we know about a customer, the more we can customize their visit, the more we can forecast their business frequency.”
At the same time, the industry has not yet hit on a tried-and-true formula for loyalty programs. The old-fashioned punch card is on its way out (although not completely extinct), giving way to more sophisticated programs that incorporate challenges, tiers, subscriptions and more.
And yet there is little agreement on which format is best. According to a recent report from software provider Qu, 80% of restaurants plan to change their loyalty programs this year, suggesting the industry is still feeling things out.
With all of that in mind, the Restaurant Business editors spent a month testing different restaurant loyalty programs. Our goal was to find out which strategies worked for us and which didn’t. Did these programs convince us to make that one additional visit or order that one extra item? Or were they just another source of spam in our overflowing inboxes?
Here’s what we learned.
Free food works
It almost goes without saying, but free food was a strong motivator for our team.
The offer of a free pizza from Domino’s proved to be a timely hook for Managing Editor Heather Lalley on one “particularly bleak” Friday afternoon. The chain sent her a text that said: “Rough day? Domino’s has your back with a FREE Emergency Pizza.”
“The timing was impeccable,” Heather said.
I personally was enticed to join Panera Bread’s Unlimited Sip Club by the prospect of free all-you-can-drink coffee (for $12 a month). And the simple promise of a buy 10, get one free program helped encourage Digital Specialist Kimmy “Spoons” Kaczmarek to keep returning to The Brewed cafe in Chicago.
On the other hand, programs that didn’t offer free stuff, or did so only with strings attached, weren’t nearly as effective.
For instance, none of Insomnia Cookies’ advances convinced Senior Editor Benita Gingerella to stop in, even though she lives just blocks away from one of its locations.
“One thing I did notice, they never gave anything away for free,” Benita said. “You always had to purchase something in addition to the freebie.”
And Editor-at-Large Peter Romeo was dismayed by the lack of birthday giveaways offered by the many loyalty programs he’s a part of. Most dangled only a discount for his big day, which wasn’t enough to get him off the BarcaLounger, he said.
Although restaurants may not like to hear it, discounts and giveaways remain the bedrock of successful loyalty programs, said Olga Lopategui, founder of consultancy Restaurant Loyalty Specialists.
“Unfortunately, the vast majority of people flock to loyalty programs because of free stuff,” she said. “If you don’t provide free stuff, generally the programs don’t work as well.”
Freebies obviously eat into a restaurant’s profit margins, which are thin enough these days as it is. But it’s not as if operators get nothing in return, said Anna Tauzin, a restaurant marketing specialist who helped 32-unit Big Chicken develop its first loyalty program.
“What people give us is I think more valuable, because they’re saying I’m interested in having a deeper relationship with the brand,” she said. “To me, having their contact information so that I can build a relationship with them is really important.”
What about free experiences?
Some brands have begun to offer loyalty members more experiential perks that go beyond free food.
At Big Chicken, for instance, members can cash in their points for the chance to win a free Carnival cruise. Unique giveaways like these are intended to help build the brand and create a community, Tauzin said.
We didn’t encounter anything like that in our tests, and the experts we spoke to had slightly different takes on the strategy.
Shoemaker said aspirational rewards like priority seating and VIP dinners appeal to customers on an emotional rather than financial level. “They like to get to that next level because they feel they’ve accomplished something,” he said.
Lopategui agreed but said she hasn’t seen that approach work as the foundation of a program. “Experiential rewards are wonderful as long as it’s a second layer,” she said.
The simpler, the better
As more restaurants have launched or relaunched loyalty programs, those programs have tended to become more complex. But we found that simple, straightforward programs were preferable to ones with lots of bells and whistles.
Senior Editor Pat Cobe tried out Sweetgreen’s Sweetpass program, which is, by the chain’s own admission, pretty complicated. It has three tiers—a free option and two paid options—each of which includes up to eight different perks, from traditional rewards to challenges, “bowl drops” and the “Friends of Earth Perk.”
“Sweetgreen gives members the chance to earn rewards through challenges offered on the app, but I’m not into that,” Pat said. “I want to earn rewards just by ordering food frequently—not by putting any extra effort into it.”
The salad chain has said Sweetpass has not met its expectations so far, and it is working on simplifying it.
For some of us, the idea of signing up for and engaging with any loyalty program felt like too much work.
“I have enough paperwork to deal with as it is in life,” said Senior Executive Editor Tara Fitzpatrick. “I like being unencumbered more than I like saving a few dimes.”
People are busy, after all, and have little time or energy to spend decoding a restaurant’s loyalty structure. So programs that made earning, tracking and spending points seamless were winners with our group.
Editor-in-Chief Jonathan Maze gave a shout-out to the Starbucks app, which allows users to load funds onto a digital card. “It’s so intuitive and easy to use that it just makes sense to keep loading it over and over again,” he said. “And if you have money on the app, you use it.”
Jonathan’s 15-year-old son, Liam, is a member of a few restaurant loyalty programs. But his favorite is McDonald’s, because it’s easy to keep track of rewards and points in the app, he said. He rides his bike to the nearest location every couple of months to cash in on an offer.
“The consumer has to clearly see, ‘What does it take to move up? What am I getting?’” Shoemaker said. “If it’s too complicated for them to understand it, then they’re not gonna bother.”
Don’t poo-poo the punch card
Though punch cards have largely been replaced by fancy digital programs at restaurant chains, the no-frills approach still has something to offer customers, especially regulars.
For Spoons, who goes to The Brewed multiple times a week, it doesn’t take long to rack up the 10 purchases needed to earn a free beverage. And because the freebie can have any number of syrups and other add-ins the guest desires, Spoons estimates that she ends up saving about $10 for every 10 purchases she makes. That equates to $1 off every transaction—not a bad deal at all.
“Punch cards are still popular,” said Tauzin, who tried one with Big Chicken last year. “It gives people that sense of satisfaction.”
The only problem is that the analog format prevents the restaurant from learning about or following up with the customer, which is a big limitation.
We want rewards yesterday
Some programs made us wait too long to be recognized for our patronage, which in turn made us feel less loyal.
Benita, for instance, observed that she would have to spend $100 at Insomnia Cookies to get a $10 reward—a quest that she estimated would take years.
Restaurants seem to be receptive to customers’ calls for faster rewards. Several brands, including Domino’s, Potbelly and The Coffee Bean & Tea Leaf, recently updated their programs to allow customers to start cashing in points earlier.
At Potbelly, loyalty members could previously only get a reward after banking 1,000 points, and points could only be spent on entrees. Now they can exchange points for a variety of menu items starting at just 200, which can be earned after just one or two visits.
Faster redemption turnarounds have benefits for both parties, Shoemaker said: Guests can use their points how and when they want, and restaurants get unspent points off their books.
Yes, it’s true: Loyalty points become a liability for restaurants when customers hold on to them for too long. Having unspent points on the ledger is also a sign that customers aren’t finding value in the program.
Many brands have tackled this problem by putting an expiration date on points. That was a distinct motivator for our editor-in-chief, who of course has a healthy respect for deadlines.
“Honestly, the only thing that really convinces me to go to any of these locations when I otherwise wouldn’t is the prospect of losing my points,” Jonathan said. Most other offers he just tunes out.
Travel programs set an impossible bar
Hotel and airline rewards programs are usually considered the gold standard for loyalty. Customers wear their status with pride, and it can unlock truly valuable rewards, like earlier seating on a flight or a room upgrade at a hotel.
Most restaurants could only dream of that sort of engagement. But they shouldn’t hold themselves to the same standard, and customers shouldn’t expect them to.
Flights and hotel stays are big-ticket items, which is naturally going to make loyalty members more engaged in their programs, Lopategui said. With restaurants, “typically it’s very hard to get someone to pay attention,” she said. “They have to be a true, true fan of the brand.”
Also, the average flyer or hotel guest will spend thousands of dollars over their lifetime with a brand, compared to hundreds at a restaurant. So travel providers can afford to offer better perks.
It has to work on the ground
Snazzy digital loyalty apps are great, but they lose value if they fail at the finish line.
My biggest frustration with Panera’s Sip Club program was that it was difficult to actually get my hands on the free coffee. I ordered ahead in the app and got a confirmation, but when I showed it to the cashier, there was no record of it. He shrugged and handed me a cup anyway.
“That happens everywhere,” Shoemaker said. “Management hasn’t gotten the word down to the staff, and they just assume that everyone knows.” He noted that many hotels hire loyalty managers whose job it is to smooth out those disconnects.
To make sure loyalty programs close the loop, restaurants have to invest in teaching staff how to operate them and why they’re important. On top of being responsible for administering loyalty rewards, employees can be a key force in getting people to sign up.
“I cannot overemphasize how important it is to communicate with franchisees and training staff about why loyalty is important,” Tauzin said.
Convenience and quality matter
At the end of the day, there are some basic factors that will give a natural boost to any loyalty program, like a customer’s proximity to the restaurant and whether the food is any good.
Executive Editor Lisa Jennings became a heavy Cava user not because it has a solid loyalty program, but because it opened a location just a few blocks away from her house, and her whole family loves it. At least one member of her household of four visits the restaurant almost every day—“and I’m not exaggerating,” she said.
Lisa is a member of Cava’s loyalty program, but she sometimes forgets to collect her points, and the brand doesn’t send her emails or text messages (although it is soon launching a new program that will do that).
“I wouldn’t say the current loyalty program motivates me to visit at all,” she said. Instead, it’s the convenience and the food that has made Cava a staple at the Jennings residence. As she put it: “You had me at harissa.”