As inflation rises, restaurants turn to loyalty programs for customer retention

Consumers across the U.S. are reeling from high inflation, and restaurants are feeling the impact. On the heels of an already turbulent past three years with COVID, a rapid shift to digital and record-low unemployment, the restaurant industry is trying to bring customers back to the table and keep them there.

A huge strategy: Loyalty programs. In a recent Epsilon survey taken at the Restaurant Leadership Conference, 44% of respondents said that acquiring and retaining loyalty members is the primary focus for bringing customers back to restaurants within the next six to 12 months. The same is true for the consumer: A 2022 Lending Tree survey found that half of Americans think loyalty programs are more important than ever.

However, more than half of the consumers surveyed said they would leave a rewards program if the deals weren’t worth it. And, as some brands begin devaluing their loyalty programs, they risk losing even more because they simply don’t know how to manage the loyalty program to be valuable for both the brand and the business.

So, what makes a restaurant loyalty program work? Jean-Yves Sabot, Vice President of Data Business Development for Retail, Restaurants and Grocery Stores at Epsilon, said having rewards isn’t enough. Brands need to understand their customers on a granular level to offer them the benefits and experiences they truly want, and to do that, they need to know how to acquire and activate first-party data.

“For the longest time, the restaurant industry hasn’t fully capitalized on the value of loyalty,” Sabot said. “You can’t just provide rewards, you need to know the customer and what is important to them, because a discount won’t get every customer in the door, and rewards won’t always get them to stay.”

Using data to drive better returns

When done right, loyalty programs are huge revenue drivers. According to Epsilon data, 65% of a brand’s business comes from loyalty customers, and 86% of emotionally engaged consumers want brands to be engaged and reciprocate their loyalty in two-way interactions.

In the past, Sabot said restaurants relied on a marketing tactics like window advertisements or flyers to drive customer interest. But in the digital age, many restaurants are still using this non-personalized approach, despite having more data at their fingertips than ever before.

First-party data allows brands a way to personalize their relationship with individual consumers 1:1. It enables brands to personalize experiences and rewards across channels based on customer interactions to drive long-term engagement with the brand. This creates a stronger value exchange: A brand can deliver the right message to the right audience, meaning customers are more willing to reciprocate.

“One customer might actually be price sensitive, but I might not be,” Sabot said. “What if a brand knew that someone is going to be motivated by a deal? What if you knew I was motivated by an experience? You don’t need to give a free hamburger to a person that would pay at full price anyway. An individual strategy at scale is going to allow you to retain customers and not lose your profit margin.”

What does that look like? It could be having exclusive menu items, drawing someone in at a different time than they normally go in, or mixing up suggested menu items based on buying behaviors.

Filling in data gaps

These blind spots are often caused by data gaps, Sabot said. If a brand is using their loyalty program as a means to solely push out deals, they’re not learning anything about their customers. Better data helps identify and understand customers at the most basic level, but it also builds better analytics and segmentation.

Some brands have a cache of first-party data, some don’t. At Epsilon, our foundational data layer provides consistent guest recognition, understanding and the ability to leverage those insights, enabling you to know customers better and improve communication across all channels.

Restaurants can also employ tools like a customer data platform (CDP) and a clean room in addition to a loyalty solution to drive those types of data enhancements. Filling in data gaps gives brands a full picture of a consumer’s story: Are they still who we think they are?

“Marketers can feed on the wrong signals,” Sabot said. “That’s why data is super important. If a restaurant says, ‘My loyalty customers aren’t coming in, I am going to reach out to this customer and give them an offer to come back,’ but they don’t realize that person has moved where they don’t have a location, they’re not realizing they’re trying to fix a totally different problem. This isn’t about retention for that person if they’re out of market. You’re spending money to bring me back and I’m not coming.”

Activation, activation, activation

The key difference for marketers looking to make more meaningful loyalty programs is how they’re activating their data. Brands need real-time, unique insights that use machine learning and loyalty models to drive success.

Matt Stewart, Senior Director, Restaurant Strategic Consulting at Epsilon adds, "Providing curated, personalized experiences and benefits based on available data is paramount to staying relevant in the current environment. It's critical to have strategic roadmaps in place to guide omnichannel and loyalty activities."

At Epsilon, our PeopleCloud solutions are powered by CORE ID, the industry’s most accurate, stable and scalable identity resolution that recognizes 250 million+ U.S. consumers in a privacy-safe way. These key insights help brands understand the customers they have, and the customers they might want to attract.

Our value-led loyalty program creates greater emotional connections, and helps brands anticipate and activate with your customers, measure the results from your program and then optimize your strategy for continual success. It creates value to the brand and their customers, with personalized experiences that use behavior-driven, real-time engagement.

“There is a lot more competitive activity in the restaurant space,” Sabot said. “When your competitors are using data as an advantage to retain their customers and take yours, you are at a disadvantage if you don’t have a way to bring them back. It’s not just about having the data, it’s about using it to its full potential – giving you and your customers the benefits and experiences you deserve.”