Is Loyalty a One-way Street?
When a restaurant chain talks of its loyalty program, what does that mean? Is it enough to be loyal, or are there other factors at play when it comes to a diner choosing where they eat? How does this loyalty change if something about the restaurant changes? If a restaurant has to raise its prices, I might stick by them while I can still afford it, but does it go the other way if my money runs out?
As I write, my mind is going back to my wedding anniversary dinner last year, when my wife and I had a fun time at a new microbrewery restaurant. Naturally, the food was delicious, but what really made it stand out was the waiter. He loved his job and took great pride in pairing 2 ounce tasters of their latest brews with our food choices. Not only did he make great recommendations, but the stories he told about why he made them thoroughly entertained us. As a result, we now head over there much more often, ostensibly to relive that memory as much as we enjoy trying new food and beer choices.
This set me thinking about some restaurants at which I‘d not eaten for a while. What changed?
- My favorite Indian restaurant in London – If the proprietors of this establishment had kids, then the period 1998-2004 was when I put them through college. Rarely did a week pass when I was not enjoying their lamb tikka jalfrezi, or their bombay aloo. I never fell out of love with their food and would still hand over a crisp tenner for a carton of their spicy, unctuous fare. However, I moved away and San Diego is apparently too far out of their delivery zone.
- A small Afghan restaurant in San Diego – This was my lunch spot every day I was at the office for more than two years (So I’m a creature of habit – don’t judge me!) Their chicken salad was perfectly crisp and fresh, with aromatic flame-grilled chicken and a yeasty chunk of bread. When my office moved over the road, it now took a twenty minute walk, crossing three sets of lights to get there and my favorite salad was now for special occasions. One doesn’t have to change continents. I was only 300 yards further away.
- An excellent salad restaurant in San Diego – This place has a great selection of salads. Every day I could try a new set of flavors, textures, and dressings, all for less than $10. I went there almost every day for a year. They even gave me a free salad one Christmas. Then my wife and I bought our first house. Like many folks we bought the most we could afford at the time, so the mortgage payment was twice our previous rent and belts had to be tightened; so I started bringing my lunch to work.
While I recognize that cherry-picking three examples in my life do not constitute anything close to being a representative data set, the general point can still be made. Each of these restaurants probably could have regarded me as a loyal customer. I loved their food. I brought friends to try these places. I needed no incentive to visit. I chose them on every possible occasion, and yet it wasn’t just circumstances out of the restaurants’ control that took my patronage from them. They didn’t even see it coming.
Thus, while restaurants all want diners to choose their location – the food, the atmosphere, the service and the incentives may all mean nothing if guests are too far away or what they earn is already being stretched across too many other bills and necessary items. Frequently, there are two other considerations that can affect a diner’s ability to choose where they eat: proximity and affordability. Both have been hard to accurately predict for your guests until recently.
Most restaurants, even big chains, are able to collect little in the way of external guest data. Meanwhile, the usual sources do not reveal much regarding two critical pieces of information, namely home address and disposable income. Surveys can be great at measuring which other brands are being considered by your target guest and can sometimes inform what share of their dining you’re capturing, but typically reveal little about how far a guest travels, or what proportion of their available cash they’re spending. Whether they collect information from hundreds or thousands of respondents, none of it can be applied to each of your individual sites at a guest level.
Loyalty and guest programs are a great way to bridge this gap and start communicating directly with your guests. The trouble is that while this can start a dialog with thousands of your guests, they are still an unrepresentative subset. These are the folks who respond to an incentive and receive a reward for frequent patronage, but are not necessarily your most valuable guests. The trouble with “loyal” guests is that they’re often loyal to so many other restaurants too.
The world of Big Data is seeing more organizations collect transaction or Point of Sale data. This allows restaurants to start looking for patterns in areas such as day-part, frequency, menu choices, food/beverage pairings, average check, etc. All of this is attached to the credit card number (suitably anonymized via tokenization) as a unique identifier. While this approach is helpful, it still can have a few drawbacks. The first is that I’m probably regarded as two different diners if I have used two different credit cards to pay at the same establishment. Similarly, anytime my spouse has paid it most likely puts our household into a third bucket of data. The main problem though, is that this approach still looks inwards and says little about the two principle factors that affect my loyalty, namely my proximity to one of your restaurants or my ability to pay.
This is where the tide is turning when it comes to what a restaurant can know about its guests. Proprietary capabilities linking POS data with a cardholder’s estimated discretionary income can fill in a missing piece of the puzzle. That process also helps to refine multiple cards into individuals and individuals into households for which there is an address, and then re-anonymized for privacy. The picture is more complete.
From here, there are a number of benefits. Restaurants can now base their most expensive decisions on tens of millions of data points, rather than a few hundred survey responses, or a few hundred thousand loyalty club members. That could help inform:
– Trade area extent by daypart (e.g., when coming from home or office)
– Brand choice (for restaurant groups)
– Site location
– Share of plate
– Preference for competitors
– Local marketing
– Direct marketing
– Promotions & incentives
And think of how timely and resonant your messaging could be if you were to onboard these households into the digital marketing environment. What would you say in banner ads for guests whose frequency is declining? Would you offer free appetizers to a guest who is now lives closer to your competition? Or the occasional glass of the house red if you saw a guest’s discretionary income declining after months of frequent visits?
Stepping up when someone needs the help — that’s loyalty. However, let’s not confuse it with commerce. Delivering the best dining experience possible is the best way to deliver a consistently high quality experience, but I hope you agree, this will only take you so far as you grow. A better understanding of guests’ proximity and affordability can help shine a light on two of the most influential factors in their decision to dine with you.
Neil Aldridge is a Product Specialist in the Consumer Markets Group at IXI Services, a division of Equifax.
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