To Get the Most Out of Your Loyalty Program, Target Low-Frequency Customers
When rolling out a loyalty program, most organizations begin with a simple punch card initiative meant to reward your best guests—a thank you recognition that is good for brand loyalty but falls flat in today’s data-driven age of customer engagement.
Let’s start out by discussing the key goal for a loyalty program. Your program needs to reach a critical mass of members for it to make you money.
On many previous occasions, we have recommended that restaurants aim for a loyalty penetration rate (defined as the percentage of checks that are from program members) of at least 15 percent—and ideally, it would be much higher than that.
Once you reach 15 percent, you are at critical mass and good things start to happen:
- Servers and employees promote the program. Likely to encounter at least one loyalty member per shift, each server/employee needs to quickly learn about the program and its benefits.
- Word of mouth takes root. Customers overhear and see others talking about and using the program, which causes them to seek out information on how to join.
- The financial results start to matter. The program will boast a higher check average for members, and your targeted promotions will move the sales needle.
With this as the goal, there are two questions you should ask:
- What do I need to do to get to 15 percent or above?
- What sort of guests should I look to enroll in my loyalty program?
Let’s take the second question first.
Who Should I Look to Enroll?
The greatest revenue-generating potential a loyalty program can tap into is from the segment of guests who visit sometimes but not always. We have seen this proven time and again over a decade working with more than 300 reward programs.
Let’s focus on the range of visit opportunities available among three distinct visit-frequency segments: medium-to-high, low, and infrequent. Each guest segment visits at a particular frequency. Guests with medium-to-high frequency are giving the brand nearly all of their possible visits. Since they are already your biggest fans, getting them to visit you more is going to be tricky, and you run the risk of discounting visits that would already take place without a promotional offer.
On the other hand, low-frequency guests are visiting you occasionally, but those guests typically are visiting other brands more frequently. The potential for your team to move low-frequency guests into a higher-frequency segment is where the value of any successful loyalty program comes into play, as the goal is to steal visits from the competition.
Does this mean that you shouldn’t try to enroll higher-frequency guests?
Of course not. You obviously want your best guests in your loyalty program, but the data indicates that you don’t need to try all that hard to get them to join. They will seek out inclusion.
High-frequency guests are always motivated to join loyalty programs.In fact, those who visit most frequently will join a loyalty program no matter what.
Guests with the highest visit frequency will be the first to join the program. They are in your restaurants or visiting your retail stores all the time. If you launch your program on a Monday, they will have visited by Friday and will probably join the first time they learn a program is available. This trend is reflected above on Figure 1. In the first month, nearly one-third of all new members are from the medium and high visit frequency segments.
By month four, the proportion of new members who have medium-to-high visit frequency drops to nearly one-sixth, with the majority of new members falling within the low and infrequent segments. As a good program progresses, the majority of new members are those guests who visit sometimes but not always. It is these low-frequency members who will drive incremental revenue for the brand.
Our experience and analytics have shown that a brand usually can’t get to 15 percent penetration by enrolling only its best guests. And to achieve higher levels of penetration, it is even more important to be skilled at enrolling lower-frequency members.
Figure 2 shows a typical participation curve for a program that successfully reached 15 percent penetration. While customers with medium and high visit frequency drove some growth in the early months, over the long run, the majority of the growth comes from the low-frequency segment.