By Zach Goldstein, CEO and founder of Thanx, In the restaurant world, loyalty and payments possess an inexorable link. Marketers rely on transaction data from individual customers to increase personalization, targeting and effectiveness of loyalty programs. But long-term customer retention is hard for restaurants; BIA/Kelsey estimates that two-thirds are lacking in any loyalty program at all. Building a successful loyalty program has proven difficult, mostly because maintaining customer interest and engagement is tough. According to Colloquy, out of 2.65 billion loyalty program memberships in the United States (22 per household), only 43 percent are active. That’s what makes the Sept. 9 announcement of Apple Pay so crucial for retention marketing. Apple’s approach designing an innovative mobile payments solution demonstrates clear lessons that all loyalty programs can appropriate immediately to improve customer uptake and participation in their programs.
What restaurant loyalty marketers can learn from Apple Pay:
- To enter mobile payments, a hyper-competitive industry projected to amount to $1 trillion in transactions next year, Apple needed a clear competitive advantage. During CEO Tim Cook and SVP Eddy Cue’s product presentation, four factors stand out as Apple Pay’s unique benefits. Apple’s strength has always been its focus on the user experience; no exception here. Rather than fishing for a wallet or fumbling through multiple pin codes or apps, Apple Pay users simply tap their phone at the point of sale. Apple Pay makes customers’ shopping experience more time efficient.
- Apple Pay integrates directly with the current credit and debit card networks. Instead of developing a proprietary payments system (a potential scenario given the importance and ubiquity of payments for iTunes), Apple gives customers the ability to utilize active accounts they already own and monitor (and keep earning those valuable credit card rewards as well).
- Apple Pay addresses security concerns head on. By encrypting credit card data (through a technology known as tokenization) and utilizing fingerprint authorization, Apple can increase payments security beyond what’s possible with a plastic card and signature. It’s by taking on this added risk that Apple actually gets paid – with a percentage of the transaction fees.
- Apple anticipated and addressed potential customer conflicts. With measures to recover lost data, personalize individual customers’ experience, and integrate with other mobile platforms such as Passbook, Apple Pay avoids what hindered rollouts like Ping. The presentation of a comprehensive solution increases the likelihood that customers will initially experience, and continue using, Apple Pay on an ongoing basis.
One common thread unites all four factors: reduced friction. For restaurants, the name of the game is fast and reduced friction that dramatically increases customer lifetime value. Time-efficient lines increase peak hour throughput. Utilizing existing infrastructure increases ease of enrollment. A focus on security reduces churn. And added features that minimize customer confusion speed up the pace of adoption and decrease time to scale. How to enhance existing loyalty programs: As such, loyalty marketers should appropriate what makes Apple Pay successful in an effort to produce the same monetary benefit for their own retention programs: increased revenue and reduced churn.
Digitize to reduce customer agency:
Asking customers to carry and present a physical punch card or plastic loyalty card at checkout introduces too much agency. The high drop out rates from customers losing, forgetting, ruining, or ignoring their loyalty membership is not worth the risk. And it’s a big risk: 60 percent of loyalty memberships go inactive within the first year according to Mintel. Instead, restaurants must digitize: take advantage of new technological advances and offer incentives to transition physical assets to electronic engagement models like mobile applications.
Minimize steps for redemption to minimize cost
Pounce on any opportunity to decrease the number of steps customers need to participate in loyalty programs. For example, instead of asking customers to enter their personal information at the point of sale every time they enter the store, build on the existing checkout flow – customers already have phone in hand and are already paying with their credit card. This will ensure that loyalty program setup comes with minimal cost, which makes for ideal testing and iteration.
Utilize existing infrastructure to increase enrollment
Deploy loyalty programs in line with how customers currently pay. Rather than asking consumers to sign up for a new program and carry yet another piece of plastic – and in order to avoid painful POS integrations yourself – track loyalty progress tied directly to customers’ preferred method of payment.
Address customer concerns in advance to reduce churn
Modern customers want to be treated as individuals. Not in mass. A 2014 Colloquy study found that 93 percent of U.S. consumers feel that the type of reward offered is “very important” or “somewhat important” to decide to join a loyalty program and remain engaged with a brand. Develop a customized set of offers to send to customers based on their transaction history. Utilize location data, derived via app or beacons, to deliver content according to customers’ behavior and preferences in-store. Doing so will reduce churn, which will consequently increase the amount customers spend over the lifetime value of the program.
Focus on reducing friction to transform customers into VIPs
According to a 2014 Loyalogy study, effective restaurant loyalty programs increase visits by 35 percent and 73 percent of customers are more likely to recommend a restaurant they feel has an appealing rewards program. Above all, reduce friction to make programs as customer-centric as possible to generate an effective program. Focusing on the creation of an experience that’s easy for the customer, instead of optimal for the brand, makes customers feel like VIPs. This makes loyalty more pronounced, which positively impacts the frequency of customer visits, average check size and likelihood of referrals.
The opportunity Apple Pay creates for loyalty programs
Apple Pay, for all its best practices, does leave out valuable data that is crucial for long-term success of retention marketing. Merchants that start accepting Apple Pay will actually have even less information about their customers than they do today. Apple does not pass on name, card data or any other consumer information to the merchant, making it very hard to build and deepen consumer relationships. Furthermore, Apple Pay doesn’t support mobile offer delivery or location targeting. Passbook has potential to fill in some of these gaps, but Passbook analytics and push notification setup require dedicated software and marketing resources.
These needs present a huge opportunity (and challenge) for next-generation loyalty programs. In a data-driven era, any restaurant that is lacking detailed analytics at the individual level will be unable to achieve the true personalization and “everyone knows your name” feeling that keeps customers coming back for more. Outside of the largest businesses in the country, it used to be prohibitively hard and expensive to achieve these results – but by focusing on reducing friction for consumers and merchants alike (say goodbye to point of sale integrations), more restaurants than ever before have been able to access sophisticated loyalty marketing tools. The time is now – and it doesn’t even require Apple Pay.
Zach Goldstein is the CEO and founder of Thanx. Thanx helps merchants identify, engage and retain their best customers. He previously spent several years at Bain and Company, with a focus on customer satisfaction and retention for leading restaurant, retail and high-technology companies. Source: QSRWeb
