Is Loyalty Profitable

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Is Loyalty Profitable? National Restaurant
Association Convention May 17, 2007
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Are loyal customers the best?

• They purchase more frequently
• They spend more
• It costs less to retain them thanto acquire a
  new one

Win loyalty and win profits
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Restaurants are late to the table

• Fewer than 25 have them
• Customers want them
• 50 would be more likely to patronize
• Restaurants fit the bill
• High purchase frequency
• Highly competitive market
• Idle capacity

CautionBe careful before you jump
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Customer loyalty profitability

• Airlines
• Many frequent flyers actually lose money for the
  airlines
• Financial
• Profitability for credit card customers varies
  wildly
• Retail
• Difficult to identify incremental sales from
  loyalty programs

Measure relationship between loyalty
profitability
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Claim 1 Increases purchase frequency

• Huge impact in some industries
• AirlinesUp to 20x increase
• Credit cardsUp to 100
• Limited upside for restaurants
• Best case guess2x to 4x
• Less incremental gains
• Caveat Multiple restaurant participation

Limited incremental purchase frequency
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Claim 2 Increases transaction

• Data is not convincing
• No direct correlation between purchase frequency
  and transaction
• Many airline elite flyers pay lowest fares
• Soft benefits can influence
• Evidence may suggest the opposite
• Expect a better deal as a loyal customer

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Do the math
Average Loyal
Change Visits per year 2 4 2 Average
sale 75 100 25 Annual
sales 150 400
250 Conversion rate
20 Incremental sales 50
Customer Retention 2 4 2 Customer
LTV 300 1600
1300 Conversion rate 20 Incremental
sales 260
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Claim 3 It costs less to retain a customer

• Acquiring a new customer is more costly
• But compared to other industries, restaurant
  loyalists have lower relative value

Typical Loyalist Behavior Restaurant
Other Industries Visits per year 5
20 Average sale 150 400
Value of a loyalist 800
8000 Value of a new
customer 200 300 Relative
ValueLoyalist vs New 4 26

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Keys to profitable customer loyalty

• Set measureable objectives
• - Frequency of visits, increase in transaction
  size, customer retention
• Understand customer behavior
• -Current and desired behavior
• Develop compelling value propositions
• -Rewards, recognition and privileges

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Customer behavior drives value
High
BestCustomers
GoodCustomers
Share ofCustomer
AverageCustomers
BetterCustomers
High
Low
Potential Value
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Develop compelling value propositions
Hard Benefits Promo currencies Gift cards
Rewards
Soft Benefits PersonalizationPerks
Recognition
Privileges
Personalized Communication
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Focus greatest spending on greatest opportunity
High
Best
Better
Rewards
Good
Average
High
Low
Recognition Privileges
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Beyond loyaltyleveraging customer knowledge

• Customer loyalty programs can achieve significant
  benefits for restaurantsif structured properly
• One of the primary benefits is customer knowledge
• This can be leveraged to help you attract more
  valuable customers to your restaurants

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Targeting high potential customers

• It is more important to reach the people that
  count
• Than to count the people you reach

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Building loyalty begins before the first meal
To develop Loyalty Marketing needs to Target New
Patrons Who will Value the Brand
of Patrons
5
Loyal Customers 4 meals per Year
30
Returning Patron
Patrons with a Delightful Experience
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Number of People
45
First Meal
10,000s
55
35
Patrons with an OK Experience
100,000s or 1 in 10
People who will value the Brand-Value Proposition
Future Patrons who live, work or visit the Foot
print
1,000,000s
The Marketing Food Pyramid
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Building loyalty begins before the first meal
To develop Loyalty Marketing needs to Target New
Patrons Who will Value the Brand
of Patrons
5
Loyal Customers 4 meals per Year
30
Returning Patron
Patrons with a Delightful Experience
30
Number of People
First Meal
10,000s
35
Patrons with an OK Experience
100,000s
People who will value the Brand-Value Proposition
Future Patrons who live, work or visit the Foot
print
1,000,000s
The Marketing Food Pyramid
Nay Sayers
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Profitability of loyalty communications
of Patrons
Returning Patron ROI 50 90 Influenced by
Dining Experience 10 Influenced by
Marketing 20-40 Marketing Cost per Incremental
Meal Implication ? email Loyalty Communications
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Loyal Customers 4 meals per Year
Returning Patron
30
Number of People
Patrons with a Delightful Experience
30
First Meal
10,000s
35
Patrons with an OK Experience
New Patron ROI 100 10 Influenced by Dining
Experience 90 Influenced by Marketing 10-30
Marketing Cost per Incremental Meal Implication ?
Mail Loyalty Acquisition Efforts
100,000s
People who will value the Brand-Value Proposition
Future Patrons who live, work or visit the Foot
print
1,000,000s
The Marketing Food Pyramid
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Identifying future patrons in your foot-print
170 MillionMarketable Adults
Clone your best customers and apply cloning
model to prospect base
Prospects DM qualified In-footprint
Clone profile Best geographies Target age
groups etc.
Current customers Geographic Demo/psychographic be
havioral
PromotionDetail
ProductClonesProspects
Advance Analytics
MarketingCommunications
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G2Prospect Universe Database

• G2kc has developed a unique and powerful prospect
  database
• Comprised of all 160 million marketing eligible
  adults in the USA
• Through the combination of primary research and
  20 years strategic analytic experience, G2kc has
  created a compilation of proprietary data
• Disposable income income that is available
  after major expenses
• Wealth estimated household net worth
  assets-liabilities
• Purchase decision drivers Price, Service,
  Convenience
• Differential income income relative to
  neighbors
• Distance cross-reference distance in miles
  between every US ZIP
• Potential value Value to CONCEPT with 100
  walletshare
• Pre-processed to remove standard suppressions
  such as pander files, opt-in do-not-solicits,
  etc., and is NCOAd with each bi-monthly refresh
  

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G2 prospect universe data elements

• The database also maintains over 150 standard
  demographic, financial and psychographic
  information elements e.g

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Prospect Decision Drivers

• Characteristics Needs
• Rewards junkies
• Whats in it for me

• Offer Types
• Major Promotions
• Bonus Points

Reward

• Characteristics Needs
• Service
• Special Needs
• Complex Application
• Documentation Tracking

• Characteristics Needs
• Bare Bones
• No Frills
• Shops for lowest prices

Price
Service
MarketingOptimization

• Offer Types
• Only
• Free

• Offer Types
• Priority Seating
• Select wines

No Twist
Twist
Convenience

• Characteristics Needs
• Flexibility
• Easy Access

• Offer Types
• Location Location Location
• Easy Access
• 10 Minute Guarantee

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Cloning model application
Rank prospects by Product Clone score and select
those most likely to become customers
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