8 loyalty program mistakes restaurants make

This is part one of a two-part series.

Loyalty programs have come into their own in the last few years, fueled by an increased in online ordering brought on by the pandemic. A hefty number of consumers, 79%, want restaurants to pursue loyalty rewards rather than social media advertising, according to loyalty rewards company Punchh.

QSR brands like McDonald's and Chick-Fil-A have used loyalty programs for years but have begun incentivizing app use with special merchandise or limited-edition menu items. Loyalty programs, it seems, have brought new ways for restaurants to engage with their customers.

QSRweb and Pizza Marketplace talked to several loyalty program companies by email to learn what restaurants are doing wrong when it comes to using rewards programs.

Understanding your program

The first mistake is a lack of a clear value proposition.

"If there is any confusion around how much points are worth or how and when a guest can earn a reward, this creates a disincentive to participate," said Mayank Patel, EVP of strategy for Personica. "Additionally, if a brand offers up too rich of a rewards program it risks losing revenue it could have generated anyway. Ensure your loyalty program is built properly from the start as you won't want to have to change it later."

Don't rely on rote discounts

Far too many brands are reliant on rote discounts, but rote discounts rarely produce a true increase in customer lifetime value — the true measure of loyalty, said Zach Goldstein, founder and CEO of Thanx.

"Legacy loyalty solutions are tricky with their data — they point to the fact that loyalty customers visit more often than non-loyalty customers as evidence that their discount program is working," he said. "This is self-selection bias and correlation, not causation; of course, the customers who visit you more frequently are also more likely to join your loyalty program."

Thanx uses control groups and A/B split testing to measure whether a campaign is actually driving an increase in spend.

Thanx "measures … success in incremental revenue net of discounts, not opens or clicks. One upshot of this approach is that we often find that non-discount rewards (such as hidden menus and exclusive access) and data-driven personalization without any incentive can perform just as effectively as a discount… that savings falls straight to the bottom line," Goldstein said.

Failing to layer offers

On paper, loyalty programs sometimes seem like an easy concept; but the truth is that there's a massive divide between functional loyalty programs and successful loyalty programs, said Don Wight, president and general manager of Punchh.

One of the most prominent mistakes marketers can make when designing their loyalty programs is to fail to keep their consumers in mind. Driven by larger trends in retail and hospitality, consumers are now expecting more experience, transparency and flexibility when engaging with brands, which also extends to the offering in their loyalty programs, Wight said.

"Even the most basic of customer loyalty programs will now require data unification, digitization, and channel integration to truly support the rising demands of guests," Wight said. "That means creating more complexity within your current loyalty program and offerings and the implementation of an increasingly diverse loyalty infrastructure. This could mean layering personalized rewards, gamifying with a tier-based programs and offering discounts in real-time based on historical data like past purchases, browsing history, menu SKUs and inventory availability. Your loyalty program must now evolve from a single point-based earning model to a 360-degree customer engagement program in order to truly compete within the marketplace. Creating a loyalty program without taking the time to understand your individual guest's needs can lead to a program that doesn't resonate with them and fails to generate long term lifetime loyalty."

Level of difficulty

Len Covello, CTO of Engage, said QSR loyalty programs are often too complicated. Sometimes customers have to perform multiple actions, and other times the reward structure is simply too complex.

"In addition, we often see that the redemption process isn't well-integrated into the checkout flow," he said.

"For example, when customers need to carry receipts or print vouchers for redemption or specific coupon codes — or when the cashier isn't sure how to facilitate the redemption process — this all adds friction for the customer.

"One way to overcome these challenges is for QSR loyalty programs to become mobile-first. This may seem like an obvious solution, but any program that is still using a physical card or paper is behind the pack right out of the gate. Today's customers are looking for a quick tap or the ability to present their phone screen in order to pay with points at check out. That's the definition of a seamless experience. The way to provide this type of experience is to secure a tight integration with the POS system. Leave the heavy lifting to systems in the background."