
In today’s competitive and saturated quick-service restaurant (QSR) environment, loyalty programs are no longer optional — they’re critical for driving growth. Industry leaders like McDonald’s, Domino’s, Starbucks, and KFC have made loyalty programs central to their business strategies.
McDonald’s, for example, has announced that loyalty is a core part of its future growth, with plans to add 100 million active users to its loyalty program by 2027, according to Fortune. Domino’s has also embraced loyalty, with the 2024 relaunch of their program bringing in 2 million new members right out of the gate. Starbucks is another standout, building one of the most successful loyalty programs in the QSR space with over 30 million active members. Meanwhile, KFC has recently launched a new loyalty program that has quickly become an instant hit, driving customer engagement and strengthening brand loyalty through personalized rewards and experiences
The QSR industry as a whole is witnessing an increased focus on customer loyalty, with programs designed to increase frequency, average spend, and customer lifetime value. With loyalty taking center stage, we spoke with expert Jillian Dimoff to explore how restaurants can implement effective strategies that increase revenue while enhancing customer engagement.
Strategies for Driving Incremental Revenue:
Q: What are the most effective strategies that restaurant loyalty programs can use to drive incremental revenue?
JD:
If we’ve learned anything over the last decade, it’s that transactional programs are not enough to drive engagement. They don’t influence consumers as much anymore, so we have to raise the bar. That being said, every time we survey customers they almost always state that earning discounts and rewards are crucial to earn their loyalty. So, we need to be creative and we can do this in a few different ways:
- Offering interesting tiers that provide more benefits and a feeling of exclusivity build emotional connections with consumers.
- Create a truly personalized experience by leveraging progressive profiling so that each brand interaction feels like it was made specifically for the customer.
- Create non-transactional earn opportunities that are tailored to the customer and who they are purchasing for. For example, these can be referrals, product reviews, or surveys.
- Offer a diverse set of redemption options since customers love choice. Sure, everyone likes to redeem for points or dollars off, but they enjoy sweepstakes and free merchandise, too.
Q: Can you share an example of how a loyalty program has successfully increased customer frequency and spend in a restaurant?
JD:
One great example is our work with Donato’s. We helped them launch their loyalty program from the ground up, and they’ve seen fantastic results. Not only were they ahead of the curve with charitable donation incentives, but they also doubled their loyalty program engagement after launch. Their program focuses on customer frequency and spend as core metrics, with specific rewards that keep people coming back more often.
Defining Incremental Revenue:
Q: How do you define incremental revenue in the context of a loyalty program and why is it important?
Jillian Dimoff (JD):
Incremental revenue is additional spend that we’re able to influence or incentivize customers to make. By creating a strong value proposition, we see that loyalty members consistently spend more than non-loyalty members. This increase can happen in a single transaction, for example, through offers like bonus points encouraging larger basket sizes.
It can also be seen in frequency, where a guest who usually visits once a week is motivated by a punch card to visit twice a week. These tactics unlock the feeling of “irrationality” which motivates them to spend more and more often.
Balancing Rewards and Profit Margins:
Q: How can restaurants offer rewards that drive sales without eroding profit margins?
JD:
Know your customer base. If you have a truly loyal customer that is showing continual growth, they don’t need discounts and will probably respond more to other benefits because you’re part of their lifestyle. These “Growers” are a small group but the most profitable, so less eroding of margins.
The middle segment of customers are “Stable.” Perhaps they need an offer or a bump if we’re seeing stagnant activity and we need to reinforce the value of the program. This group responds to discounts and offers.
The bottom segment are “Decliners” or those that are churning and engaging less, spending less, coming in way less often. Depending on their past purchase behaviors, you could leverage a variety of tactics to get those lapsed customers re-engaged; but if customer data shows a continuous decline over a large span of time despite your efforts, then it might be best not to invest here. So don’t waste your margins.
Customer Behavior and Incremental Spend:
Q: What role do tiered programs or exclusive perks play in encouraging additional spend?
JD:
Tiered programs are great because you’re letting your customers know what is expected of them so they’ll spend more to get better offers and benefits. Tiers can be aspirational for customers. Restaurants can also offer limited-time promotions that allow guests to “taste” the benefits of a higher tier, incentivizing them to spend more to maintain that level of access.
For example, if you offer top-tier guests exclusive early access to seasonal menu items, they are more likely to spend more frequently to maintain that status. “Limited-time access” promotions can help retain high-value guests and convert middle-tier customers into more frequent diners.
Q: Are there specific customer segments more likely to generate incremental revenue through loyalty programs?
JD:
It depends on the program and the details of what it entails, (and who’s taking advantage of it). For example, do you have lapsed customers, or customers that only purchase once a year, or every couple of years? You wouldn’t direct your marketing or budget to keep those “bad” customers.
Then you have a middle-segment, where you have an opportunity to influence spend. This is where you want to invest, for example, one-and-done purchasers that you can win back. Finally, there’s the segment of high-spenders: you’re not trying to incentivize behaviors that would have happened regardless. Instead, we want to give perks and added benefits to make them feel special (delight the customer, and really get to know them); places where we can re-engage them. And then hopefully they will refer friends to also join the program (make them your superfans).
Promotions and Offers
Q: What types of promotions or offers have been most effective in driving incremental revenue?
JD:
We’ve seen a lot of success with digital punch cards and challenges. That is, a gamified approach to loyalty that is fun and engaging and allows members to earn for repeat purchase, or in exchange for sharing their customer data, advocating for the program with referrals, or sharing on social media, committing to incremental purchases or visits, etc. Two examples of companies who have embraced this are Starbucks Rewards™ program, and Vans Family which is focused on building engagement and community with sweepstakes, challenges, surveys, and more which we’ve seen highlighted.
Programs that initiate second purchases are very effective. You have a limited window of opportunity to influence consumers. If they don’t make a second purchase within a certain timeframe, you could lose them. If they make a second purchase in that window, there’s a higher probability of both continued spend/return customers and referrals.
Personalization is a must-have. You can’t do offers that are generic to everybody. If you’re promoting products or services that aren’t aligned with the customers’ preferences or buying behaviors, they’re not going to be effective. Conversely, when customers feel like you really understand who they are and you get to know them, and you’re looking for those buying signals to anticipate purchases – that’s when you see the greatest success.
Donato’s has seen great success with punch cards, motivating customers to increase their purchase frequency by offering rewards. This approach not only encourages repeat visits but helps open up customer behavior. One customer may typically only come at lunchtime, but with a targeted breakfast promotion they may start showing interest in other times of the day.
Measuring Incremental Revenue
Q: What key metrics should marketers track to measure the impact of loyalty programs on incremental revenue?
JD:
The key metrics you want to track for loyalty members vs. non-members at a minimum are:
1) Annual Spend: how much are customers spending on an annual basis?
2) Average Order Value; Average Basket/Ticket Size: What is the average a customer spends for one visit?
3) Average frequency: What is the average amount of visits a customer will make to this business?
4) Customer lifetime value (CLTV): Loyalty members will have a higher lifetime value (dollars spent) than non-members.
5) Customer Retention Rate: If we see an average customer only spends 2 times per year, even getting that incremental half spend on average, it can make a huge impact on their revenue. It affects “not-so-fun” metrics too, like Churn Propensity. If we’re seeing customers fall away from the program, maybe it isn’t engaging enough, or the value prop isn’t strong enough. If a customer has a high churn propensity or is at risk, we can utilize tactics to get them back on track.
6) Redemption Rate: Are customers using their points to redeem for rewards and how often?
7) Enrollment rate: Upon launch, we might see a higher enrollment rate, the rate at which people become members, but then we may see it decline over time. This is why we recommend continually launching new benefits and rewards to keep the program fresh.
There’s a long list of metrics; but at a minimum, these are what will tell you the health of a program.
Q: How can businesses differentiate between organic revenue growth and revenue driven by loyalty programs?
JD:
To do this, you can compare purchases between members and non-members. You can see that loyalty program members have more incremental spend because brands are incentivizing that spend. Companies report on programs in earnings calls because it’s so key to their business. They report an increase in membership, or revenue, etc. So, it drives purchases outside of organic growth (and affects the bottom line in that way).
Optimizing Loyalty Programs for Revenue Growth
Q: How often should businesses review and adjust their loyalty programs to optimize for incremental revenue?
JD:
You should continuously be monitoring your loyalty program, as should your provider. There should be QBRs (Quarterly Business Reviews) and continuous measurement of metrics and benchmarks for the program. We’ve pivoted on design in the first six months or within the first few years, in some brands’ cases. Customers, and the times are always evolving, so programs have to evolve, too. Rewards are getting more personalized based on preferences and behaviors. Here is one example we’ve seen out in the marketplace:
Starbucks’ loyalty program: Their original was based on frequency. However, some customers tried to take advantage and game the system by asking cashiers to ring up their purchases in separate transactions, which caused operational issues and fraudulent activities. So, they changed their model to be based on dollar spend, instead of frequency of visits.
Bottom line: Review the program all the time! Loyalty programs are not “set it and forget it.” You need someone at the head of the program who can make strategic decisions and lead the program based on a thorough analysis.
Q: What common mistakes do marketers make that limit the incremental revenue potential of loyalty programs?
JD:
There are a number of these, but here are a few:
Cannibalism of offers: competing with other offers being presented in other parts of the company, for example, email opt-in offers that pop up and de-emphasize the loyalty program’s value. It seems like there’s a sale going on all the time because customers are extremely demanding and their attention spans are short. Marketers need to be strategic in the way they manage offers so as to not reward bad behavior or provide discounts to customers who would purchase, regardless.
Right now retailers are feeling pressure to over-discount. For example, Bed, Bath & Beyond’s 20% off coupon reinforced bad behavior so that customers were trained to expect it without doing anything in exchange. It’s smarter to shift these offers into loyalty programs because brands will get more data, and be able to influence the behaviors that they want to influence.
Another issue is that some loyalty programs have become too complicated. They can be too “coupon-clippy,” (like some grocery stores and QSRs); or there is often too much responsibility put on the customer to find the offers they need.
Q: How can personalization within loyalty programs help drive additional revenue from existing customers?
JD: By understanding buying behaviors and looking for buying signals – even when we’re seeing lapses and declines in frequency – you’ll be able to accomplish this. In one QSR example, a customer was lapsing, only coming in once a month, and then completely started lagging on coming in at all. Now, with their loyalty program, their punch cards have the customer coming in twice per week! This proves that brands need to stop only looking at segments and look at individual customer behaviors. With Marigold Loyalty, our program has machine learning that looks out for customer behaviors and highlights them so you can get them back on track.
Wrapping it Up
Personalization, exclusive perks, tiered membership levels, and tailored incentives are important drivers of incremental revenue for restaurants with well-designed loyalty programs and can increase customer frequency and spending. Adding features such as mobile wallets and restaurant-specific apps can enhance the versatility of these programs and drive even more growth.
If you’d like to learn more about Marigold’s Loyalty platform and how it can be tailored to your restaurant’s needs, you can explore more here or contact one of our specialists. For more insights and brand rankings, download the full Relationship Marketing Trends: Brand Rankings Report for Restaurants here.
Find out more at meetmarigold.com.