Loyalty programs are a dime a dozen these days, with restaurants seemingly tripping over themselves to offer customers rewards. But for every Starbucks, with its passionate fanbase and astronomically successful rewards program, there are countless others that fail to capture customer interest.

A panel discussion at the Restaurant Franchising and Innovation Summit held in March in Kansas City aimed to crack the code, dissecting what makes a loyalty program truly engaging and what pitfalls to avoid. Restaurant industry experts delved into the secrets behind building a program that fosters customer loyalty, not just another forgotten app notification.

The summit, run by Networld Media Group, draws executives from leading brands to share successful ways to build and manage restaurants. Networld Media Group is the parent company of Fastcasual, Pizza Marketplace and QSRweb. Its next foodservice event is the Fast Casual Executive Summit being held October 13-15 in Denver, Colorado.

The expert advice was shared in a breakout session called “Why Your Loyalty Program Isn’t Working,” a panel moderated by Stacey Kane, a fractional chief marketing officer who works with several brands. Speakers for the event included Nathan Casey, VP of digital marketing, engagement and experiences at IHOP; David Daniels, SVP and CMO at Potbelly; Tommi Tervanen, CEO of The European Pizza Company and Peter Vogel, chief revenue officer for vPromos.

Working loyalty programs

Casey said IHOP has seen good success with the launch of its loyalty program. “The guest response was just fantastic,” he said. “We had tremendous growth kind of right off the bat, and we’re seeing that increase and spend. We’re seeing that increase in transactions that you would expect from a loyalty program.”

Kane said IHOP is a legacy brand and asked why the brand launched its first program just two years ago. Casey said his industry has been changing significantly over recent years and with the exception of Starbucks and Domino’s, the restaurant industry was reluctant to embrace loyalty for a long time. Just before the COVID-19 pandemic, QSRs began launching loyalty programs in droves.

Casey said the reason he believes more restaurants have embraced loyalty programs recently is marketing related. With the decline of linear television and an aggregated audience, brands need more ways to reach customers. Second, brands started to see the benefits of data-driven marketing and understanding purchasing behavior.

“It’s a way to get your guests to self-identify themselves any time that they’re making a purchase so that you can start that relationship with your guests so you have that direct marketing channel to them and, second, you understand their behavior over time,” he said.

Tervanen said The European Pizza Company believed restaurants shouldn’t launch loyalty programs unless they understand what the consumers’ perspectives of loyalty programs are. A study by Merkle found that 56% of consumers first consider the product they’re receiving, while only 20% take into consideration a restaurant’s loyalty program when ordering.

The European Pizza Company, based in Finland, got 10% of the population — 20% of the households — to join its loyalty program in just two years.

“The amazing fact is that our loyalty members are on online orders close to 70% now,” Tervanen said. “And of the total company revenue, it’s 38%. Customer lifetime value is about 180 euros ($192.42). … That’s interesting when you can calculate the math (of the) customer lifetime value divided by the customer acquisition cost. And then you can direct your marketing campaign boost.”

The brand’s frequency doubled from three to six times a year.

Personalization

Daniels said personalization is important to Potbelly’s loyalty program. The brand has salad, sandwich and soup consumers, so there isn’t a “one-size-fits-all” loyalty solution for his customers.

“If I’m a salad customer, I don’t want a sandwich. I see no value in sandwich offers,” Daniels said. “In order to be able to generate the best value proposition, I think personalization is key. … If all you’re getting are sandwich offers and you’re a salad consumer, it’s as if we don’t know who you are and we don’t know anything about you.”

With personalized offers based on menu data and customer behavior, “we see exponentially higher rates of engagement,” Daniels added, “both offer redemption and visitor frequency.”

Vogel’s brand, vLoyalty, said the premise of what his company offers is based on automation, which helps both the merchant and the customer. When paying, if a customer hasn’t been to the restaurant before and a credit card is not recognized at the terminal, guests are given the option to join the loyalty program right on the spot and start earning rewards that day.

“From that point forward, every time the person pays, they’re tracked automatically, the points are recorded, and we even go as far as to automate the rewards,” Vogel said.

Signing up

Kane said she struggles with her brands getting customers to download yet another app. She asked the panelists what they do to encourage signups of the panelists’ loyalty programs.

Daniels said Potbelly has Potbelly Perks promotions that the brand advertises that are only available for loyalty customers. “By advertising them across our entire national media campaign, you’re identifying No.1, it’s an attractive offer, so there’s a hook there (and) there’s a value proposition in the offer, and it’s attractive enough to say ‘hey, if the only way that I can access that is either download the app or join the loyalty program, I’m willing to do that.’”

Potbelly offers a free original sandwich to get people to sign up for the loyalty program, but the brand also has an underground menu that can only be accessed by the app.

Casey said IHOP’s teams must be excited about the loyalty programs to make it work. “They have to be bought in. They have to see the value in it, and they have to see the value in offering it to the guest. Most of our employees like giving added value to the guests, making them happy making it a positive experience, so working with (employees) to make them excited about it (and) about offering the program is a huge thing.”

IHOP also allows customers to pay their bills from their phones via the app. Casey agreed that having a sign-up bonus is imperative.