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The Value of Customer Loyalty and Retention

By Elsa Klein

There have never been more consumers or bigger demands in the global QSR market than there are right now. While many hospitality businesses are making massive efforts to attract new customers to their brands, far fewer are taking full advantage of the widening opportunity to convert and retain those customers. 

Investing in advertising can help grow your customer base, but it does little to keep them from churning after the first or second visit. If your goal is to see higher customer lifetime values (CLV) and ongoing profit increases, then it’s important to turn your attention toward building loyalty and retention.

What Are the Key Benefits of increasing brand loyalty and retention?

A loyal customer is defined by three key indicators: recency, frequency, and monetary values. Together, they show an RFM value, which discloses how loyal a customer is to your brand. And increasing your average RFM value is one of the most efficient and sustainable ways to uptick profits in the long run.

Growing this value starts by retaining more customers and building them into your loyalty system. Retention means quantifying customer engagement and the perceived value of your service and offerings. Targeting customers who are new to your brand with personalization, engagement opportunities, and special offers can lay the groundwork for a long-term relationship that will grow into lasting loyalty down the line. 

Loyalty programs can seem like a costly upfront investment with little immediate return – but there’s a reason why US companies spend over $50 billion every year to build loyalty. Pushing resources into loyalty is a long-term investment that leads to higher profits, more data acquisition, and stronger brand recognition. Here are the top benefits of growing loyalty and focusing on retention. 

Enjoy High Profitability 

Research shows that the ROI on loyalty programs, if they are put into action the right way, is exceptional for hospitality brands. Increasing customer retention by just 5 percent is shown to increase total profits by 25 percent

One reason why this works is that the revenue from loyal customers is predictable, giving businesses a consistent and available cash flow. And because they typically place similar orders all the time, it is easy and effective to make offers to them, helping lower marketing costs and increase customer spend. 

Gaining a new loyal customer means that your brand can look forward to ongoing engagement with that guest without ongoing investment on your end.

How to Create a Loyalty Marketing Program That Works

An effective loyalty marketing program can minimize customer churn, increase your revenue, attract new customers and engage existing customers.

Leverage word-of-mouth marketing

When it comes to building a successful business, there is no form of marketing better than word of mouth and brand advocacy. Customers who are loyal to your service are likely to share their experience, refer your brand to a friend or a family member, and help you create a positive, wide-reaching reputation in the marketplace. For businesses, this kind of self-cycling influence can mean exponential growth in sales and a wider customer base.

Improve data analytics and behavioral insights 

TASK’s Chief Strategy and People Officer, Kathryn Byrne, says loyalty has “so many under the surface benefits, beyond just being a revenue stream. Data collection is a big one.” Loyalty customers, through interacting consistently across a brand’s digital channels, indirectly help provide more data and insight into predictive analysis initiatives.

“Loyalty members provide brands with so much valuable feedback,” says Kathryn. “They are the best resource for collecting information – whether it’s about how well your offerings are going, what channels are most effective, or really anything new that you put out to your customers.”

For instance, they can help businesses understand:

  • Which products or services have an edge over competing offers
  • How different target demographics prefer various items or product categories
  • Where there is an opportunity for customers to increase their spending
  • The average lifetime value of a customer

Ultimately, loyalty metrics offer businesses unparalleled insight into what makes their brand ‘sticky’ in the market. This makes it easier for restaurants to make effective business decisions that lead to long-term growth.

Design data-driven strategies

It’s far easier to pinpoint where and why a problem occurred with a complex data stack that can uncover root causes for customer behavior changes. Loyalty programs help provide businesses the ability to clearly differentiate outcomes between their retention and their acquisition strategies.

For example, a QSR could have a separate budget and list of key goals for their efforts in marketing and advertising than they do for customer loyalty conversion or retention. Using different avenues for collecting and analyzing the results of different campaigns and tactics makes it possible to gain valuable insights and designate which strategies are working and which ones need to be amended. 

“Loyalty programs are most effective when a brand knows exactly what they are hoping to get out of them – whether that’s growing engagement or increasing revenue. From there, it’s all about consistently tracking changes, and understanding their causes,” says Kathryn. 

Reduce acquisition costs over time

There’s an apocryphal and often-quoted statistic that says gaining new customers often costs 5 to 25 times more than keeping a current one. While this sentiment holds true, in actual fact, the number is likely even more extreme. Loyalty programs, while often requiring an upfront investment, will typically see their efforts returned in spades with higher customer lifetime values in the long run.

Customer retention metrics influence loyalty by helping businesses understand more about why and how customers become loyal to a brand over time. Data from current customers can uncover which triggers or engagement initiatives have been effective in the past, which helps brands design better campaigns in the future.

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Understand where to grow next 

Customer loyalty paves the way for businesses to constantly improve and grow their offerings, acquisition, and experiences. As John Laporte, TASK’s President of North America, explains, “Loyalty gives you the groundwork to develop a cycle of improvement across your entire digital ecosystem – from the experience through each different channel through to how you can increase your kitchen’s capacity.”

Every piece of a hospitality business is interconnected, and seeing growth in one area necessitates innovation in another. Greater customer loyalty sits at the center of your customer base – providing brands with a consistent revenue stream, a source of key customer behavior learnings, and a network of willing candidates to try new offerings and provide feedback about them.

Enhance your Brand’s Reputation 

“So much about whether a guest returns to your brand is down to their perception of your service. Improving that perception is crucial,” says John.

Growing loyalty indicates to businesses that customers have a generally positive perception of their brand. The great news about having a good reputation is that it can widen quickly and naturally. Once your brand is enjoying a wide-reaching, self-perpetuating reputation, loyal customers are only more inclined to stick and engage. Loyalty often invites more loyalty. As soon as brands have established some loyalty, it is usually easier for them to draw in more.

Start raking in the benefits of loyalty and retention

“It’s important to realize that loyalty programs aren’t one-size-fits-all,” says Kathryn. “They require a lot of work, and a lot of setup that is unique to each brand and their specific goals.”

To get the most out of your loyalty efforts, it’s important to take the time to consider what you are hoping to gain from your efforts – and then lean on expert advice and support from your technology partner.

When leveraged fully, increasing your loyalty and retention is a highly profitable and cost-effective solution to maximizing customer lifetime value, boosting sales, and driving key business insights based on meaningful data. The result in the long run is enjoying a far-reaching reputation that solidified your brand’s position and success in the market.