Bite-Size Loyalty Newsletter

ISSUE 005

Measuring loyalty performance

Success in loyalty is about driving incremental improvements in customer spend, visits, and engagement. You have heard me talk a lot about driving customer lifetime value, but LTV can be difficult to measure. What’s more, customer lifetime value is a lagging indicator of the impact of your program and, for most moderately sized restaurants without tons of loyalty data, has “statistical relevance so wide you could drive a truck through the error bars,” as our Chief Product Officer, Aaron Newton joked when we were discussing the topic.

The good news is that there is another metric that’s much easier to measure: Average Revenue per Customer. I love this metric because it’s so easy to calculate and it shows the impact of marketing activities almost immediately.

The formula is simple:

Average Revenue per Customer = Total Revenue / # of Customers

In other words, how much revenue, on average, does a single customer generate during a specific period of time. I’d suggest identifying standard periods of measurement, for example, 7 days, 14 days, 30 days, 60 days, 180 days, and all time. The actual periods don’t matter. The consistency does. 

This approach has a few benefits: 

• By defining static periods, you can easily see improvements over time and plot those on a graph to see how you are trending.
• This metric can be calculated almost immediately after launching a new loyalty program and shows incremental improvements (or declines) right away.
• You can see how marketing activities drive spending and when you find initiatives that work, you can automate them to maintain that high performance. 

It’s important to note that, when calculating this metric, you must exclude those customers who were acquired during the time period being measured. 

Restaurants are raising prices at levels not seen in decades. In January, for instance, limited-service menu prices rose 8%. So far, it seems consumers are willing to pay these higher prices, and executives believe they have plenty of pricing power left. The CFO of Jack in the Box, Tim Mullany, said this week that they have “more room” to raise price “if we need to.” But inflation is hitting consumers hard, and it often takes time for consumers to change their spending habits when prices increase.

So what’s this got to do with loyalty? Well, loyalty programs generate data about customers, their habits, their spending, and help us understand trends. A loyalty program can help restaurants navigate inflation and mitigate losses by:

• Measuring the response to price increases
• Offsetting those costs for a particular segment of valuable customers
• Encouraging the purchase of high margin items
• If spending does curtail, loyalty can help maintain profitability by driving repeat visits without expensive discounts

Have a question or topic you would like to see represented in this newsletter?

The era of the Chief Data Officer is coming

By popular demand, we posted the video of our CEO, Zach Goldstein, speaking on stage at the Fast Casual Executive Summit. You can find it here. In the video, Zach describes the digital flywheel, how to get started with personalization, and why the Chief Data Officer will become so important in the future.

Non-Discount Reward of the Week?

Red Lobster is cooking up some creativity!

Red Lobster celebrated 2/22/22 with a sweepstakes offering one winner the chance to win $22,222, and 222 winners the chance to win 222 My Red Lobster Reward bonus points. What I liked most about the campaign is that each app user automatically received an entry and their subsequent dine-in and to-go orders earned them additional entries throughout the week. So the campaign drove app downloads (and therefore loyalty membership) as well as purchases. A double whammy!

Have a unique “non-discount” reward that you would like to share?