Optimize the value of your rewards
A crucial aspect of designing an effective loyalty program is determining the value of the rewards offered. While the range of 5%-10% is common, understanding the factors that influence this value is vital for restaurant operators. Below, we will explore the considerations in deciding the value of rewards in your loyalty program, taking into account campaign strategies, pricing dynamics, and competition within your market.
Assessing Campaign Strategies:
- Restaurant brands often set their reward percentages based on their campaign objectives. If your intention is to run numerous marketing campaigns and engage in active customer interactions, a reward percentage closer to 5% might be appropriate. This allows for more control and involvement in managing the program. However, if you prefer a more autonomous program that requires less intervention from your side, a reward percentage closer to 10% may be suitable.
Pricing Dynamics and Margins:
- One might assume that increasing rewards would significantly impact margins. However, loyalty program members tend to be less sensitive to price increases. In the restaurant industry, once you have achieved a sufficient number of signups for your loyalty program, you can consider modest price adjustments to offset the cost of rewards. Over time, as the rewards become absorbed within your general cost structure and margin calculations, they can often become cost-neutral. This highlights the importance of building a robust base of loyal customers before implementing price increases.
Analyzing Market Substitutes:
- Determining the value of rewards requires careful examination of your competitors and their loyalty programs. Look beyond direct competitors within your category and consider brands offering near substitutes. For instance, if you run an ice cream chain like Cold Stone Creamery, you should analyze the rewards offered by both Baskin Robbins, a direct competitor, and brands offering similar treats such as Dairy Queen Blizzards. By understanding the rewards provided by these brands, you can set benchmarks for your own program and ensure competitiveness within the market.
Significance of Signups:
- Before increasing prices or adjusting the value of rewards, it is essential to focus on maximizing signups for your loyalty program. The larger your loyalty member base, the more effectively you can distribute the cost of rewards across your customer network. By offering enticing sign-up incentives and promoting the benefits of your loyalty program, you can encourage more people to participate. This will help ensure the cost of rewards is absorbed within your overall cost structure.
By understanding your objectives, managing pricing dynamics, and analyzing your substitutes, you can set appropriate reward percentages that both attract customers and contribute to your overall profitability. Remember, building a strong base of loyal customers through signups is critical before considering any adjustments to prices or rewards.
