Loyalty Programs: How to Get the Marketing Benefits While Addressing Fraud Concerns

A wave of restaurant innovation is upon us. The pandemic accelerated the role of ecommerce in the restaurant industry with the popularity of online ordering for delivery and curbside pickup. As the customer experience shifts to digital, restaurant brands can establish direct customer relationships to better understand their preferences and habits, enabling businesses to increase lifetime value through loyalty programs and personalized promotions.

Younger consumers have the highest preference for digital apps. Sixty percent of Gen Z consumers prefer to use an app or website to order from a restaurant compared to 55% of Millennials, 46% of Gen Xers and just 24% of Baby Boomers, according to TransUnion’s Quick Service Restaurant Report. Across all generations, ordering directly from a restaurant’s website or app was preferred to using a third-party app, potentially to save on costs or to take advantage of special offers and loyalty points.

The study also describes how the presence of children in households impacts dining-out behavior. Households with children were more likely to report that they dined out or ordered food three to four times a week. Just over half (51%) also reported spending between $150 and $500 per week on food away from home, while only 28% of households without children do the same.

Focusing loyalty program growth initiatives on Millennials and Gen Z makes sense given their embrace of digital apps as well as the high percentage of households with children present (62% and 43%, respectively). Parents are familiar with the challenge of selecting a restaurant that pleases everyone in the family. TransUnion’s report found that families find more value in third-party apps (e.g., UberEats, DoorDash) than restaurant apps in helping them plan meals for their entire family. This is likely due to the diversity of options available in these marketplaces as well as the ability to order from multiple restaurants. To attract new customers – and increase frequency from existing ones – restaurants can develop family menu options and make them available exclusively in their digital app. Examples could be bundling items together to create a family pack that is only available to loyalty program members or creating kids' menu items with premium and/or healthy ingredients. Restaurant brands can make these options part of customers’ experience to encourage direct ordering through their app or website and further the strategic objective of building enterprise first-party data assets. Increasing customers on file and their order frequency will result in more first-party data to tailor options and pricing in an agile way. 

Enticing app usage

Consumer sentiment around coupons and promotions also hint toward loyalty program growth initiatives, according to the study. No surprise that the majority (72%) of consumers value the ability to save money, but looking further is a stark reminder that messaging counts. Thirty-eight percent (38%) of consumers report that promotions give them ideas on what to order next time; this figure increases to 51% when filtering for households with children. Meanwhile, 20% report that promotions do not reflect what they typically order.

Restaurant brands have an opportunity to tailor promotions around their customers’ attributes, preferences, and order history. Brands can offer extra loyalty points at sign up, or specific offers that are only available to loyalty members to drive usage of their own website or app. 

Prepare now to address account takeover fraud

While loyalty programs are valuable for increasing usage of dining-out websites and apps, they also open restaurant brands up to serious fraud challenges. As consumers expand their use of digital ordering, so do fraudsters. The TransUnion survey found that fraud tied to using a restaurant app was high, particularly among Gen Z. Thirty-five percent of Gen Z consumers said they have been a victim of fraud via a restaurant app or website, versus just 16% of Gen X and Baby Boomers. As app and website usage grows in the older generations, restaurants could be at risk of higher fraud rates and frustrated consumers. Restaurant technologists need to protect their businesses from promotion abuse as there is increasing focus on running profitable marketing programs. And of course, there is the ongoing imperative to protect consumers from account takeovers where criminals can steal payment information or even loyalty points. 

Beyond digital fraud, younger consumers were also more likely to dispute a charge from a restaurant, which can be expensive and time-consuming for restaurants as chargeback rates rise. Nearly a quarter (24%) of Gen Z said they disputed a charge because they did not get the food they ordered. Another 16% said they disputed a charge because they were not satisfied with their experience with the restaurant. Restaurant brands should keep an eye on their chargeback rates and use device or behavior insights to identify repeat offenders.