A recent report in Restaurant Finance purports to uncover a $1.1 billion dollar opportunity in converting infrequent diners into regulars. Sounds great! Reading into the report, however, there is a slight flaw in the plan presented to unlock this billion-dollar opportunity: while the article advocates filling the top of the funnel via intrusive data-mining, it fails to address the need to connect restaurant acquisition marketing with the opportunity to funnel those new customers into an ongoing, value-added relationship via a comprehensive customer loyalty strategy. Absent a relationship based first on the dining experience and second on reward and recognition, those expensively-obtained new diners are likely to churn.
By Rick Ferguson
The impetus for the Restaurant Finance article is a recent report from NPD Group that purports to uncover reasons why frequent diners are cutting back on restaurant visits and what opportunity exists for restaurant operators to pick up the slack. The short version: if half of all "light" restaurant users made one more visit per year, it would result in an incremental increase in restaurant sales of $1.1 billion. Money quote from NPD analyst Bonnie Riggs:
"Many restaurant operators have spent much of their resources and time in rewarding heavy buyers. It's important to continue recognizing heavy buyers, but to grow their business, operators need to increase visit frequency from all user groups, including light and super light users."
As far as it goes, NPD's analysis is a fair one. While heavy diners my account for 80 percent, more or less, of a restaurant's business, there is a finite limit to the amount of monthly household income these diners are willing to spend on dining out, as well as natural limits to the number of times they'll dine out at your restaurant per month, no matter how much they love your food and service. If, as NPD suggests, systemic forces are resulting in a decrease in frequency for heavy diners, then over-funding those relationships through a loyalty program won't result in an increase in incremental visits.
In that case, there are untapped veins of gold in increasing the frequency amongst light diners. The key is knowing which ones are light because they love your restaurant but can only afford to eat their twice a year, and which ones dine out more but haven't yet shifted more of their dining budget to you.
The problem with the Restaurant Finance piece comes when the article spends an inordinate amount of space promoting a solution from data-mining company Bridg, which purports to deliver "highly targeted marketing based on the company's database of 160 million personal profiles. The database pulls information from credit cards, linking transaction data to detailed proprietary data." In other words, Bridg can find people online who look like they might become frequent diners and target them with online ads to drive them into your restaurant. Through predictive modeling, the company claims to be able to target those customers most likely to become loyal diners.
That's great! We're talking about pure acquisition marketing, surely an essential component of a restaurant's overall marketing plan. The problem here is that neither Bridg nor NPD adress one of the most effective ways for restuaranteurs to turn infrequent diners into frequent ones - target them with bonus rewards designed to drive profitable behavior change along specific behaviorial variables. Money quote from Bridg CEO Amit Jain:
"A good portion of the loyal customers start using this loyalty card because they were coming in anyway. It might be bringing in $3 million in sales, but nothing has changed in the business, the only thing that has changed is it's associated with the card."
Jain is missing a key point of order: While it's true that loyalty programs typically focus on heavy users, well-designed programs focus marketing dollars on customers of high potential value as well as those of high current value. The trick is to provide a low base funding rate - say, two to three percent of sales - and then target the other two to three percent of reward funding on those segments most likely to contribute more to your bottom line. You can bonus diners for increasing frequency, for coming in on slow sales days, or for visiting your newest location. Some bonuses will change behavior; others won't. Over time, you find what works, and suddenly your reward dollars will result in demonstrable, repeatable incremental revenue.
By all means, leverage Bridg's no doubt effective solutions to target high-potential customers online. Remember, however, that online targeting can only result in the opportunity to begin a relationship with a high-potential diner. Once they've sampled your cuisine and been duly impressed by your attentive service, it becomes essential to leverage your precious marketing dollars on rewards and recognition that demonstrate your willingness and ability to foster with them an ongoing relationship. Once they've migrated to your top-customer segment, special recognition elements keep them loyal, while the bulk of your reward dollars remain targeted to high-potential newcomers.
That's the essential nature of loyalty marketing. Design your program effectively and it become a finely-tuned marketing engine that keeps your customers coming back. It won't subtitute for poor or mispriced food or for bad service. Get those fundamentals right, however, and it will help you keep those tables turning - often with familiar faces.
Rick Ferguson is CEO and Editor in Chief of the Wise Marketer Group