Build It and They Will Come?

The pros and cons of loyalty programs—and something to think about.

Man's hand holing a loyalty punch card with three of ten uses punched. White background.
Not all loyalty programs yield results. / Copyright: Alexandr Bognat

“My wife goes to Starbucks once a year—on her birthday for her free coffee,” says Anthony Valletta, COO of Denver’s Birdcall. “That’s not building a customer.” He’s right, of course: Loyalty breeds frequency and vice versa. Now, how effective is your punch-card program?

Sydney Lynn, director of client advisory services for Restaurant Accounting Services, Inc., says, “Loyalty programs are a double-edged sword.” They can either drive business or cheapen a brand. “If you do it wrong, you give the impression: ‘I have to have this program to drive business,’” she explains. Lynn recommends systems where guests accrue points with each sale. Once customers hit a magic number, they receive a freebie. “They only get something if they come in regularly, and [the reward] makes them feel like they’ve won the lottery.” (Use your POS system to track points, while simultaneously gathering valuable customer data.) 

Another consideration: Lynn sees an increasing number of restaurants using rewards to incentivize customers to pay cash. “I’ll give you a discount [or a free item] if you pay with cash,” she says. “Eliminating the 3.5 percent credit card fee on a transaction could more than outweigh the reward.”

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