Loyalty programs can play an important role in attracting new customers, retaining current ones and building brand affinity. They can also have a significant impact on the profitability of your business. Why? Because loyalty programs typically offer you a chance to earn back some of the money you spend on everyday expenses from advertising, marketing, operations and more. To drive more spending at your establishments, these loyalty programs are offered as discounts for repeat customers. That’s why they’re known as “rewards-based” loyalty programs. This article explores everything you need to know about loyalty programs – including their benefits and risks. We’ll help you identify which type of program is right for you, along with the best practices to implement within your own establishment.
What are loyalty programs?
Loyalty programs are marketing and customer retention tools that incentivize customers to come back to your establishment or recommend your business online. Each program has its own set of rules and regulations. With each program, your goal is to make it as easy as possible for your customers to return to your business. You’ll want to make the rewards and perks as desirable as possible. You’re also trying to determine if there are ways for you to be compensated for each customer you bring back.
There are three most common types of loyalty programs in the restaurant industry:
- Cashback – Customers earn points or cash back for each purchase, then redeem points for discounts or freebies at your locations.
- Points – Customers earn points, then redeem them for rewards like gift cards or discounts at other businesses.
- Deals – Customers earn “ vouchers ” (often called “credits”) that can be exchanged for deals at select businesses.
The benefits of offering a loyalty program
There are a number of key benefits of running a rewards-based loyalty program. These include:
- Increased spending – Rewards-based loyalty programs increase overall spending at your restaurants. That’s because customers feel more incentivized to come back to your establishments with the knowledge that they can earn rewards for their next purchase.
- Increased brand loyalty – For each customer you retain, you’re also creating brand loyalty for your company. That person’s experience will be tied to your brand. You can leverage this to promote your company in a personal way.
- Increased customer understanding – As a rewards-based loyalty program begins to thrive, it’s likely that new customers will start entering the system. That’s when you have the opportunity to engage with them and create a strong connection. You can also leverage this experience to educate customers and increase their understanding of your brand.
Risks of running a rewards-based loyalty program
While rewards-based loyalty programs are proven to increase sales, they also come with a few potential risks and challenges. Some of these include:
- Costs – All loyalty programs have a cost to run. In fact, you’ll want to expect to spend an marketing budget each year to generate new customers. That number can increase significantly if you decide to run print ads.
- Competition – Rewards-based loyalty programs are also highly competitive. This can lead to lower margins and less profits.
- Changing customer preferences – It’s important to remember that loyalty programs are not permanent. That is, customers usually have a short-term incentive for being loyal to your brand.
If you run a rewards-based loyalty program in the industry for too long, other businesses may start offering more attractive programs. That may cause customers to look elsewhere for discounts.
Which type of loyalty program is right for your restaurant?
There are a few essential considerations when deciding if a rewards-based loyalty program is right for your business. These include:
- Your target customer – This is the ideal type of customer that you want to retain with your rewards-based loyalty program.
- Your competitors – This will help you identify which other businesses are in your same market and how they’re running their programs.
- Your budget – Rewards-based loyalty programs are costly to run. You’ll want to make sure that you have the budget to fund their costs and drive the type of results you want.
How to create a successful rewards-based loyalty program
There are numerous factors that can determine the success of your rewards-based loyalty program. With each type of program, you’ll want to determine if you have the right customers for it.
- Customer acquisition – Customers need to be incentivized to join your rewards program. That means you’ll want to leverage your marketing efforts and engage with your customers to find out what they want and need. From there, you can provide them with the type of value they’re looking for.
- Customer retention – At the core of any rewards-based program is retention. You have to keep your customers happy and engaged with your program so that they continue to come back to your business.
- Customer rewards – The final factor that can determine the success of your rewards-based program is the rewards that you offer your customers. The value you choose for each type of program is important.
Loyalty programs are great at driving repeat business and building brand affinity. That’s because they offer discounts and rewards for repeat customers. These programs are proven to increase sales and profitability. While they come with a number of risks, rewards-based programs are also highly profitable. That’s why they’re such an important marketing tool for the restaurant industry. With the right strategy, you can build a thriving rewards-based program that drives tons of spending at your establishments.
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