Would you like points with that? QSRs serve up loyalty programs

Sept. 9, 2012

By Phaedra Hise

Are you getting a card swipe with your coffee? Points with your Panini? Quick-service restaurants' interest in loyalty rivals that of high-frequency retail as this industry is also rolling out new programs, revamping existing ones and setting up pre-launch tests. QSR loyalty initiatives are fast becoming considerably more sophisticated than the old paper punch card.

What's new here is that these programs are being designed to track individual customers instead of aggregate transaction data. In an industry with margins as tight as grocery or mass merchandisers, a QSR's goal is to leverage customer-specific insights to make loyalty economics work.

A "Who's Who" list of fellow restaurateurs is in various stages of exploring the value of customer data, including Dunkin' Brands, McDonald's and Panera Brands. Starbucks has been leading the movement since 2008 when it debuted My Starbucks to build on the company's popular gift-card program.

"What's unique about QSR sales is that it's a low-ticket purchase. Consequently, many customers pay in cash, which is an anonymous transaction," said Joy Das Gupta, category manager, Loyalty at Starbucks. "The sea change is that we are moving away from focusing on just transactions and instead thinking about the best way to build the customer relationship. What is the best way to reach customers and drive frequency with meaningful programs, offerings and incentives?"

Starbucks had an initial taste of the power of customer-specific data with its gift cards, which required registration that allowed the company to link cardholders with individual transactions. Offering customers a similar pre-paid loyalty card program allowed the company to expand its data-gathering capability and gain insight into what its high-frequency customers were doing – and what they wanted. As reported in the company's most recent earnings announcement, 25 percent of transactions are made using a Starbucks card.

"Data is just data unless you are using it to drive insights," Das Gupta said. "We use those member insights to continually refine our loyalty programming to delight our customers."

Not many chains are as far along the path as Starbucks. Many are still in the early stages of loyalty exploration, but even those are making early discoveries that are changing the business.

In 2010, Tasti D-Lite went digital with its existing punch-card program. "Before, we had no visibility into where customers were earning and redeeming points," said BJ Emerson, vice president of Technology. "Now, we can potentially segment into high-value and high-potential customers. We can also show the stores who their most valuable customers are and get into lifetime value. We've done a first glance at it and this year we will dig deeper into the data. We have the information, now it's time to use it."

What the data revealed immediately was that the average transaction jumped 15-35 percent when a customer joined myTasti. The next insight was a strong correlation in frequency and average sale between its highest-value myTasti members and those active on social media sites such as Foursquare.

"What that tells me is that the location-based service user is the closest to our core loyalty customer profile," Emerson said. "So when other location-based apps come along, we know that would be a good investment."

Still new territory

Because loyalty is still new for the QSR industry, most seem to be grappling with basics such as identifying priority customers and creating an effective benefit mix. Along the way, leading programs have already created some interesting strategies that can apply to other industries:

Signups: Rather than compromise its short transaction time at the register by trying to fit in loyalty signups, brands such as Panera Bread, Tasti D-Lite and Starbucks have information cards that push customers either to a website or an app download to sign up and study the benefits.

Earn velocity: With low margins and tiny transactions, QSRs must create a workable tight-budget value proposition. For many, the paper punch card sets a workable guideline. At Tasti D-Lite, customers received a free cup or cone after 10 visits, roughly translating to a $5 reward on $50 of spend, so the company used that same guideline for the foundation of its digital program, adding such features and benefits as points for registering online, online points tracking and extra points for sharing loyalty activity within social channels.

Benefit mix: The tight funding rate encourages QSRs to get creative with soft benefits. Panera built its entire program around surprise-and-delight rewards, while Starbucks strikes innovative entertainment industry partnerships to offer film screenings and other special-access benefits.

Although not technically "high-frequency," QSRs command a high volume of daily transactions, which will speed companies along the loyalty learning curve, and quickly build their customer databases. They may be a little late to dinner, but QSRs are bringing a big appetite. Watch for this industry in particular to dish out trends in mobile as quick-service loyalty continues to sizzle.

Phaedra Hise is senior editor of COLLOQUY, a LoyaltyOne research group.

Topics: Business Strategy and Profitability , Customer Service / Experience , Marketing / Branding / Promotion , Online / Mobile / Social , Operations Management , Trends / Statistics

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