6 questions about how to setup a loyalty program?

We get asked a lot of questions on how best to setup a loyalty program with Punchh. This is a blog post that captures the best-practices and techniques that result in the highest engagement from our experience.

Q1: How should I configure my restaurant loyalty program? Do I want a $ based program or a visits based program?
A: We believe that loyalty programs are about driving repeat visits. So if a restaurant has a $-based program that provides $5 off $50 spent, and a customer spent $50 in all in one visit to get $5 off, the program is working as a discount program and is not likely to drive any loyalty. On the other hand, if a restaurant has a visits based program that awards $5 off after 5 visits and a customer comes in and buys a soda for $1 for 5 days to get $5 off in the 6th visit, the restaurant is losing a lot of money as it gave $5 off to a person who only spent $5 (5 visits $1 each).

While we can handle both $$ and visits based programs at Punchh, we believe the best approach is to base your loyalty program on both the $ amount spent and the number of visits. As such, with Punchh, its possible to setup a program that awards Punchhs for visits only when the customer spends a minimum of $X (amount set by the business). E.g. in the card below, the customer gets a Lunch Buffet for visiting 5 times and spending $6.99 on each visit. Base your program on both a $ amount and visits

Q2: How many punchhs should my card have?
A: As few as possible…

Now suppose you are thinking of an offer of $10 off after 10 visits ($10 minimum each visit) recast it as $5 off 5 visits ($10 minimum). The reason you want to keep the number of Punchhs low is that your customers are likely to engage more if they think that they are close to getting rewarded. Also, once your customer fill out a card, the chances of them getting to the same offer again are a lot higher than a user who has never gotten rewarded.

Now, if you’ve run the numbers and have identified the offer, but the offer is going to require 8 punchhs, you can still increase your engagement by awarding free punchhs to the users when they start on a card for the first time (See here).

Q3: What should the offer be? Is it better to offer a food/drink item or a $ amount off?
A: The offer should be as attractive as possible. Keep in mind you are engaging loyal customers with Punchh and these customers are likely to generate a lot of reviews and referrals for you so be as aggressive as possible.

Feel free to go either way on ¬†food/drink item or a $ amount offer. If you have a flagship product that people value a lot (like a lunch buffet or a famous drink/entree) and you have a high margin on, It might make sense to go with that (Freudian sip card above). Otherwise, $ amount off (as in the case of Arby’s above) also works well.

Q4: Should I require a minimum $ purchase for awarding the punchh? What should this amount be?
A: This is again up to you. While your consumers are going to like not having a minimum purchase amount, most restaurants have items on the menu that are really low cost (like sodas etc.) and don’t want users to be awarded a Punchh for just spending a dollar or two to purchase those items. These restaurants are concerned that customers might be able to buy 5 sodas and get a great deal in terms of the discount. So to prevent gaming and to ensure a great ROI, its ok to have a minimum amount for Punchhs.

When setting up a minimum amount for Punchh, a simple rule of thumb to follow is that you want to setup the minimum amount for a Punchh to be the cost of the cheapest meal at your restaurant. So in order to come up with the minimum amount for a Punchh, look at your menu and choose the cheapest entree or lunch special etc. and set that amount as the minimum Punchh amount. This ensure that your customers will always get a Punchh for a valid visit.

Q5: What if I want to change my program?
A: Sometimes, restaurants want to experiment with their offers. This means you will be changing the offer that you have established for your customers. This requires some thinking as your customers are already engaged with your program and changing a program – either changing the number of punchhs or changing the offer – is going to effect your customers. We can help you if you want to change your program. Following are the steps when you are changing your program:

  1. Design a new program
  2. Notify all the existing customers of the change. Typically, when changing a program you want to provide your customers a time window where they can still benefit from the older offer. At the end of the time period you can transition all your customers to the new program.
  3. Setup a transition plan with time windows etc.

Thankfully, we are working on a way to automate all these steps for you and will be announcing a structured way to change your program soon. In the interim, just drop us a line and we will help you out with your changes.

Q6: How should I calculate the ROI of my program?
A: This is a great question. Its important to have a sense of ROI of the program. When calculating the cost of the program you want to consider the following: Costs:

  1. Cost of the offer – If you have $5 off after 5 visits, the best way to calculate its impact is to typically just look at the cost of food associated with $5 off. Typically its about 20-30% or $1.50 for a $5 off offer. The reason you only count the cost of food in this calculation is because with Punchh you are guaranteed repeat visits (customers already proved this it to you by achieving redemptions). In fact, what we see is that once a customer gets a redemption, the frequency of visits doubles in typical cases.
  2. Cost of the program – This is the cost of the Punchh service. You will see that the cost of this service is minuscule compared to its benefits.
  3. Since Punchh empowers your customers to engage with your restaurants from their own mobile devices and computers, it does not slow down your line, doesn’t need any hardware, doesn’t need service visits and requires minimal training for your staff. This cost should typically be 0.

Benefits

  1. Repeat customers: You can count all the repeat visits from Punchh from the Punchh dashboard. Typically customers using Punchh will come twice as often as your other customers.
  2. New customers: Punchh allows you to measure referrals. You can go to the dashboard and see the pictures and details of all your referred customers. The way to value a referred customer is to calculate a customer life-time value (LTV). A quick rule of thumb is to multiply your average check size by 10 to arrive at your LTV. E.g. if the average check size at your restaurant is $15, then the LTV of your customer is $150 (assuming an average of 10 visits from a referred customer – adjust to your specific estimation). Multiplying the # of referrals with LTV will give you a sense of the benefit from Punchh.
  3. Social media: Punchh allows you to empower your customers to write reviews for your business. You can use these reviews and republish them to your Facebook wall and Twitter pages. This is really the best way for you to drive your community engagement as customer testimonials are proven to work the best in driving other customer visits. So, with Punchh you no longer have to hire somebody to create content for your FB page and Twitter. To calculate the benefit here, you can calculate the cost of the social media hire.
  4. Re-engagement via emails and push notifications: Punchh builds up your customer list and provides you with a way to re-engage your customers by doing email campaigns and push notifications. These campaigns can drive a great deal of repeat visits. To put a $ value to re-engagement, assign a value to repeat visits by a customer because of re-engagement. Typically a value of $5/customer (adjust based on your estimates) is a reasonable number to account for the additional repeat visits driven by re-engagement. E.g if you added 200 users to the Punchh program in a given month, you got 200*$5 = $1,000 in additional value to your restaurant.

By estimating all the costs and benefits, you will be able to get a sense of the incredible ROI from Punchh.

Any more questions? Leave them in comments and we will be happy to add them here with answers.