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How to Create an Effective Loyalty Program for Your Restaurant

Most business owners know that it’s far easier—and cheaper—to keep a satisfied customer than to acquire a new one. And research confirms this, with studies showing that it costs anywhere from five to 10 times more to gain a new customer than it does to sell to an existing one.

And the benefits don’t end there: Research also shows that current customers on average spend 67 percent more than new customers. Furthermore, the National Restaurant Association reports that while only approximately 30 percent of restaurant operators are offering frequent diner programs, 57 percent of all adults said they'd be more likely to patronize restaurants offering customer loyalty and reward programs.

Statistics like these underscore the importance of customer retention for any business, including your restaurant. One of the most popular and effective ways to encourage repeat business to your restaurant is with a loyalty program that offers diners anything from free meals to coupons to exclusive access to new menus and events.

The popularity of loyalty programs

Loyalty programs aren’t new. But they are becoming more and more popular.

The 2015 Colloquy Customer Loyalty Census shows that the average American household belongs to 29 loyalty programs. Yet they only actively participate in 12 programs at least once a year.

Clearly, loyalty programs work—if they’re set up and run the right way.

Four types of loyalty programs worth considering

There are many different loyalty programs to choose from. Some of the more common ones include:

1. Points systems

How it works: Diners earn points based on how much they spend with you and later receive special coupons or discounts once they reach a certain number  of points or levels. (For example, a customer could receive two points for every dollar spent and receive a $5 coupon for every 100 points they accumulate.)

Commonly used by: Airlines and credit cards

Pros: You avoid having to discount your menu items, and it incentivizes your most loyal diners the most.

Cons: Lacks the instant gratification of other programs and can be one of the more complicated kinds of programs to set up and administer. Diners may also need to be reminded of their points’ status.

2. Punch card program

How it works: Diners receive a punch card; each time they make a certain number of purchases, they receive a punch that earns them a reward. (For instance, buy 10 meals, get the 11th meal for free.)

Commonly used by: Coffee shops and gift shops

Pros: Easy for diners to understand and simple and inexpensive for you to set up.

Cons: Diners have to remember to carry their card. Also, diners could fraudulently punch the card. It’s also hard for you to gather data on what or how much the diner purchased.

3. Discount program

How it works: Diners receive a card that entitles them to point-of-sale discounts on all or some meals.

Commonly used by: Grocery stores

Pros: Inexpensive for you to set up and offers instant gratification for diners.

Cons: It often rewards infrequent diners and may cause diners to think your regular prices are inflated.

4. Cash back program

How it works: Diners earn a certificate worth a certain amount from prior purchases and are able to redeem it during a certain amount of time.

Commonly used by: Retailers like Kohls

Pros: Gives diners a strong reason to revisit your restaurant.

Cons: It can be complicated and expensive to administer and it often does not appeal to infrequent diners.

Also keep in mind that not all loyalty programs have to have monetary incentives. You can also reward customers with invitations to special events at your restaurant, complimentary services and more. Carefully consider what works best for your business, and don’t forget to ask your customers which programs they prefer—their answers might surprise you.

Five loyalty program tips

Once you decide which loyalty program (or programs) is best for your restaurant, you’ll want to keep the following things in mind when it comes to setting up your program.

1. Structure it right

There’s a fine balance between offering a reward that diners want and one that makes sense for your restaurant. Think things through before you commit to anything—once you do, it won’t look good if you change the structure soon after.

2. Consider digital loyalty apps

Digital loyalty apps let you reward diners without cluttering up their wallets and let you gather data on their visits and purchasing habits. Just a few on the market include Perka, a virtual loyalty card; Spendgo, which tracks and grants reward points; and Foursquare, a location-based reward program that lets you offer deals and rewards and encourages customers to spread the word about your business on social media. Two options with a following among restaurant owners are Belly and Front Flip. Just make sure any collection of customer data is fully disclosed and consented to by the customer—failure to do so could create legal and customer relations problems.

3. Get the word out

Diners can’t take advantage of your program if you’re not telling them about it. So make sure to inform them through any e-newsletter and/or direct mail pieces you send out as well as your social media pages and in-store signage. Also, train everyone from hostesses to servers to promote the program.

4. Keep it fresh

Keep customers engaged by changing things up on a regular basis. Some ideas include double point accruals for a set amount of time incentives and special giveaways.

5. Encourage advocacy in addition to spending

Social media is one of the best ways to spread the word about your business. And research shows that 74 percent of consumers chose companies/brands based on the customer service experiences others share online. Encourage positive buzz about your restaurant by rewarding social advocacy—the digital loyalty apps mentioned above can help you do that.

If you already have great food and great service, you probably already have a legion of loyal customers. A loyalty program can be the icing on the cake that helps you keep those customers coming back for more. 

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