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06/15/2020

Loyalty Programs: A Lifeline in Turbulent Financial Times

With the Covid-19 pandemic turning the U.S. economy upside down, the restaurant industry has been particularly hard hit. Just as brands turned to loyalty programs to help them get through the Great Recession of 2007-2008, they need to optimize their programs to fight against the current economic downturn.

In fact, between 2007 and 2009, according to industry statistics, loyalty program enrollment across all population sectors grew by 19 percent. That number was even higher among millennials at 32 percent and women at 29 percent.

This growth was due largely to a need to stretch consumer budgets. People who had become price-conscious saw loyalty programs as an antidote to hard times, as a way to get more bang for their bucks.

At the time, 75 percent of businesses reported either a neutral or positive impact on their penetration rate as a result of the economy. The most interesting statistics, though, came from a large fast-casual restaurant, where the top 8 percent of guests – defined as those who came twice per month before the recession – continued coming at that same rate during the recession, according to Paytronix data. And they accounted for a whopping 35 percent of overall business over that time.  

When Paytronix surveyed those customers, they said they felt invested in the brand and actually dropped other brands to keep up with the one they were loyal to. Brands that had invested time and resources into their customers were rewarded with loyalty, even in a recession.

Will Loyalty Programs Help Now?

In a recent blog, “Sales Show Sights of Improvement,” Lee Barnes, head of Paytronix Data Insights, reported that for restaurants sales and visits bottomed out in late March when they dropped as much as 60 and 70 percent vs. the pre-COVID rate. By the end of April, however, those sales had risen back up to 50 percent of the pre-COVID rates, or a 10 percent rise.

Looking even more closely at its customer data, Paytronix compared visits for loyalty and non-loyalty customers both pre- and post-pandemic. The data revealed that, once the pandemic hit, loyalty customers continued to visit, albeit at half their pre-COVID rates, while visits from non-loyalty customers dropped precipitously.

At the same time, loyalty penetration rates – the percentage of guests enrolled in a loyalty program – are increasing modestly. Restaurants with higher loyalty penetration rates also are seeing slower declines of loyalty vs. non-loyalty visits. In fact, the Paytronix data reveals a 33 percent growth in loyalty participation over five weeks as well as a 12 percent slower decrease in loyalty visits than in non-loyalty visits. 

Making the most of your loyalty program

With loyalty programs demonstrating a positive business impact, it’s imperative to understand what makes a program successful. In fact, successful programs have three things in common.

First, they have a high penetration rate with lots of committed guests remembering to swipe their cards and collect their points each time they visit. The real breakpoint for a successful program is 15 percent penetration; however, some brands have been able to drive this up to 50 or even 70 percent.

The successful programs share the ability to deliver a material business impact, and have corporate buy-in across the company leadership team. These loyalty programs aren’t simply copy-cat models that mimic those of competitors or neighbors, but are customized to reflect both the brand and the consumer behavior.

Finally, successful programs are data driven and deliver a material business impact. They rely on data analytics to discover customer buying habits, spend, and visit cadence. With that information in hand, brands can engage their customers in one-on-one conversations that encourage more frequent visits and bigger spend. And, with customized offers, brands are also able to minimize cannibalization, which is what happens when you give away something for free that they would have purchased anyway.

Meet Your Customers Where They Are

The COVID-19 pandemic has brought home the importance of cultivating the off-premise channel. In many locations, takeout is the only way that restaurants can conduct business.

There are multiple opportunities for brands to provide value to customers who can no longer come into their stores. To start, they should connect digitally via email or text and encourage them to order online. Also, remember to push out offers via social media, especially on Facebook, so that people who may not be loyalty members can also take advantage of promotions and deals.

Giving people the option to order online and then either pickup or have their orders delivered will pay off in the long run. Afterall, once things return to normal, take-out will be a bigger part of every business. So being able to speak directly to guests – especially the technology proficient Gen Zers – will be more important than ever before.

Looking forward, it’s projected that 60 percent of consumers will order takeout at least once a week. In fact, online food sales are expected to reach $24 billion by 2023.

In summary, brands should look to their loyalty programs as “recession armor,” but also remember that successful loyalty programs require thought, experimentation, and personalization. They also require solid customer data in order to craft targeted offers that customers will respond to. And, finally, brands need to really step up their game by extending the same hospitality they’d provide on premise through a takeout service.

About the Author:

Kiera Blessing is a Content Specialist at Paytronix Systems Inc.