Marketers view all loyalty programs using two main paradigms: Earn and Burn and Surprise and Delight. Often, marketers struggle with choosing the right loyalty program. I wanted to discuss the main differences between the two programs and how to choose between them.
Earn and Burn programs win because of simplicity. They are very common because they are really simple for marketers to implement and easy for consumers to understand. A typical Earn and Burn program rewards customers after a certain number of visits or spend — for example, a program where after the seventh purchase, the eighth visit is free.
Earn and Burn programs work well for the chain's "heavy users." The upside to traditional loyalty programs is that a brand's "heavy users" win; they receive appreciation for their patronage. The downside is those rewards (discounts or freebies) may be spent on customers who likely would return even without an incentive. Of course, the bigger problem is that brands do not know for sure if such loyalty programs are cannibalizing sales.
Do Earn and Burn programs cannibalize sales? Marketers cannot easily know if an Earn and Burn program is actually increasing sales or if they're just rewarding customers who would have visited anyways. However, the problem is as much about technology as it is just about the program. We'll discuss that later in this article.
Earn and Burn programs fall short for non-heavy users and customers with different motivations. Customers who've never tried your brand or visit only occasionally need nuanced motivation to return. Unlike heavy users who respond to simple "buy five, get one free" offers, occasional customers need to be surprised and delighted by something different, something unique that appeals just to them, to bring them back.
Lack of customer insights is a big problem. Where traditional loyalty programs most often fail is in their ability to not provide insights to marketers whether they are drawing in new customers or deepening brand interest of occasional customers who lack the correct incentive to return. Marketers have had to rely on traditional loyalty program providers to provide them spreadsheets with data, and often there isn't an easy way to actually see whether the programs are actually bringing in customers more often and if so, which ones.
Surprise and Delight works for non-heavy users and aligns with different customers' motivations. Not all customers respond to the same incentives. For some, it's an immediate and tangible reward such as cash or free food. But for many others, loyalty programs need to offer other types of motivation such as:
Exclusivity: Access to the "Fast Lane" line at the counter, preferential seating in the dining room or access to a members-only craft cocktail list.
Status: Sample every wine on a by-the-glass list and get a monogrammed Riedel glass kept at the restaurant. Spend $300 on sushi and receive a handcrafted pair of chopsticks in their own case and stored at the restaurant. Or "Eat 25 wings made in our Nuclear Explosion sauce, and your name goes on our "Wall of Flame."
Recognition: The whole restaurant staff says "Thank you" in unison, when a customer gets to a high status.·
Charity/Altruism: "Order any item from our 'For the Health of It' menu and we'll donate 20 percent of the cost to cancer research."
Games: Invite someone to earn loyalty points in their free time by scoring well on a restaurant's mobile app game.
Referrals: "Refer a friend and you get a free scoop of our premium ice cream. Get 5 referrals and a free pint is yours!"· Gifting: "Gift your favorite appetizer to your friend who hasn't been here before!"· Invitations: "Because of your special status, you can invite a friend next time and appetizers are on us."· Minimum Spend: "Spend $250 on your next catering order, and receive a homemade pie on the house."
Surprise and Delight is hard to implement. Doing all this sounds impossible, I know, and that's why only a few brands have set up such complex loyalty programs. But now, with mobile technologies, setting up and managing complex loyalty and marketing programs that appeal to all segments of consumers is getting easier.
With mobile, Earn and Burn can become cool again. Instead of carrying loyalty cards, customers just download an app to their smart phones — an easy feat since smartphones make up over 65 percent percent of all mobile phones now in use. Opt-in is quick and easy. The app allows them to see their loyalty points totals in real time, which incentivizes them to return and obtain a reward. By making simple programs more accessible via smartphones, restaurants can see increases of 25 percent or more in visit frequency across all different customer groups.
Mobile makes Surprise and Delight easy to implement. With mobile technologies, setting up and managing Surprise and Delight loyalty programs that appeal to all segments of consumers is much easier and faster. This is because smartphone opens up a channel to communicate in real-time with customers and present them with a unique and personalized reward.
With Mobile, marketers can run both programs simultaneously. Mobile makes rewards programs easier to implement and manage. Plus, mobile makes it possible to tailor rewards based on customer behavior. Marketers can have a core loyalty program that is similar to a Earn and Burn program for the really heavy users, based on visits and spend. And in addition, they can have 'program accelerators' for rewarding customers who visit more frequently or spend more during a certain time period, to reap the benefits of both programs at the same time.
Mobile provides deep customer insights. Since mobile apps are integrated with a restaurant's POS system, marketers gain deep customer insights about each customer including visit frequency, spend, order history, friends, reviews, survey data, demographics, which TV shows or sports teams they etc. No need for blind-guess 2-for-1 offers when customer purchases tell operators exactly what they like.
Think Mobile CRM (Customer Relationship Management). As that purchasing database grows, operators can discern immediately who their regular users are, what they like, and who among them may need some unique rewards in order to come back. Through mobile, operators can send customized offers directly to each loyalty customer's smartphone and address them personally. When customers respond to those offers, operators know exactly how well their promotional efforts worked so there is measurable return on investment.
Mobile provides transparency that shows operators who their customers are and what they like. The guesswork is gone. That's the real value of a mobile loyalty program and mobile CRM.
Jitendra Gupta is a Co-Founder and Head of Product at Punchh, a mobile engagement and actionable insights platform that includes branded mobile apps for campaigns, games, loyalty, online ordering, payments, referrals, reviews, gift cards, surveys, and integrates with social networks and operators’ POS systems to gather 360° customer insights. Punchh helps restaurants increase same store sales and profitability by driving repeat visits, word of mouth, new customer referrals, and higher returns from marketing campaigns.