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Modifying Your Rewards Program? Use These 3 Design Principles
Before revamping your rewards program, take a careful look at how it's designed. It may not be built for success.
Posted Mar 6, 2017
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Most restaurants today have implemented a rewards program to drive increased guest visits and spend. A strong rewards program provides a one-to-one channel for guest engagement, with data-driven initiatives to reach your customers with customized, relevant offers they really appreciate. However, if you haven’t examined your reward program’s success lately – there’s no better time to step back and evaluate it. Your program just might just need a relaunch, or some additional management attention. Before jumping to action, start by taking a careful look at your program design.

If your program fails to follow one or more of the following rewards program design principles, it’s probably not built for success. Here are the three most important principles:

  • The core program value is between 5 and 8 percent.
  • The program is designed for “silver” customers.
  • The program rewards good behavior.

Let’s start with core program value. This is perhaps the most important element of your core program. This is the value of the program member’s reward relative to the amount they spent to earn that reward. You should strive for your program to give back between $5 and $8 for every $100 spent. So ask yourself two questions: How much do members have to spend to earn a reward, and what’s the value of their reward once they earn it?

For some programs—typically of the spend-based variety—the core program value depends on what the member buys. If this applies to your program, look at your best, worst, and average cases. Suppose your program rewards members with one free menu item, which range in price from $5 to $10. To earn a reward, members have to visit 12 times and can buy anything they want to qualify for a visit credit. If they buy 12 $10 items and redeem their reward for $5, you’ll get the largest financial benefit. If they buy 12 $5 items and redeem their reward for a $10 item, you’ll receive the smallest financial benefit.

Typically, the value of the member’s reward should be relatively close to their average spend en route to earning that reward. However, over time many guests will figure out how to get the most bang for their buck and the yield will start to drift toward the worst case.

The next question to ask is if your program is designed for “silver” customers. Even if this term isn’t in your brand’s lexicon, you do have silver customers. If you were to sort all of your guests by how often they visit and how much they spend, you could create tiers for segmentation. Your best 4 to 5 percent of guests who spend and visit the most are platinum members, and will likely account for 20 to 30 percent of spending. The next 5 to 10 percent are your gold members. You likely already have a good share of wallet for gold and platinum members, so the loyalty program is primarily a retention vehicle

The next 40 percent after that are your silver members. Typically, silver members will visit fine dining concepts between two and four times per year, casual dining restaurants two or three times every quarter, and will visit QSRs or fast casual restaurants just under once every month. Convenience store silver members will visit up to two times every month. Silver members are the loyalty program’s sweet spot because they have indicated that they like your brand, but you are likely one of several in their consideration set. A well designed loyalty program can act as a tiebreaker and drive them toward your location.

Consider two pieces of information: the visit frequency of your silver members, and the number of visits required to earn a reward in your program. If you’re running a fast casual or QSR concept, your silver members visit roughly 11 times per year. If your program rewards members after their 15th visit, it’s going to take close to a year and a half for them to earn a reward. When evaluating your program, put yourself in a silver customer’s shoes and ask whether the program would motivate you to visit your store over your competitors’ stores. Would you be motivated to go somewhere that takes more than a year to earn your reward, unless you drastically increase visit frequency? Probably not.

The more you learn about your silver guests, the more insights you’ll have regarding your program’s ability to cater to them. If your program is not built for silvers, it may be time for a change.

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