Posted in: Restaurant Business
5 Reasons Why I Stay Away from Loyalty Stamp Cards
This is a guest article, written by Teddy Z, a proud owner of Boba Bear, a small boba/ hookah lounge chain in Southern California and Hong Kong and a Co-owner of the world famous Cafe Lu.
Loyalty Cards, AKA “Buy 9 get 1 free” cards, were first invented for the purpose of promoting customer retention through rewarding frequent customers with a 10th product after a certain number of purchases or amount spent. However, owners often overlook their own customer’s purchasing habits and jump on the loyalty card bandwagon in fear of losing customers. Here is why loyalty cards do not work:
1) Product and service, not discounts, promotes retention
If you are wondering why your customers are not coming back, there are really only two answers: your product and your service. Offering a poor product at a cheaper price does not incentivize people to start purchasing that product. If they didn’t like your product the first time, they are not going to come back eight more times so they can get one for free. So invest more time into your targeted demographic and find out their preferences to the product and services in your genre.
2) Loss of potential revenue
On the other hand, if your product and service are on point, you probably don’t have a customer retention problem. Then do not use stamp cards as an attempt to improve retention, because you are only giving your customers products for free when they would have been willing to pay for it full price anyway. If they bought your product 9 times, they will buy the 10th one.
3) Human errors
As the owner, the last thing you want to be concerned about is the validity of a loyalty stamp card. Though instances of counterfeiting stamps cards I have seen are far and few in between, there is just too much room for error from the customer’s side as well as your employee’s side due to the low security protection against fraud offered on a piece of paper. Do you really want to invest more brain power monitoring stamp cards?
4) It contains no customer insight
To advance towards the reward, your customers only need to make a purchase. There is no way of learning their preferences, habits, or even their names. Having collected a lot of redeemed stamp cards, you are still left with no insight regarding your customers or feedback regarding your product.
5) Loyalty apps are without loyalty
Recently there has been a plethora of apps, such as FiveStars and Stampt, that have digitized the loyalty stamp cards. Although they provide customers with the convenience of not having to carry physical cards, they have also introduced your customer to potentially many of your competition who are also signed up through their app. You are essentially sharing your loyalty program with every other “pins” on their map. In addition, some of these apps require you to have a separate scanner or device that takes up much of your precious counter real estate.
While I discourage the use of loyalty stamp cards, I definitely encourage you to reward your loyal customers in other fashions. For example, pre-paid loyalty programs not only allow you to raise capital quickly, but also provide you with customers’ information. You can easily use reach out to them to promote your newest product or offer exclusive deals and invites to private tastings or events. Since they are paying up front, the membership fees provide a good financial cushion to your working capital, allowing you some breathing room.
If you are using social media to hook customers in, try to think beyond just getting likes, follows, and check-in’s. The real power of social media is not when YOU post content, it’s when your customers post. When you post, it’s called advertising and people get annoyed. When they post, it’s called sharing and people get jealous. So reward your customer for sharing their experiences here which inadvertently advertising for you. And there are apps, such as Kapture, that does exactly that.
Getting customers involved as a part of your business is also a great way to reward them. We used to have a special where if a customer would come in and make a purchase for 30 days straight, they would get to name an item on the menu. Many people tried and a few succeeded and some of them are still regulars to this day even after we had to removed their item from the menu.
Let your customers host events, paint on your walls, bring their recipes. These interactions remove the “customer vs business” mentality and introduce more of a family dynamic. I remember once a customer came to the shop with all his luggage as he was coming back for winter break. When I asked him why not drop them off at home first, he told me that this was home. Starbucks introduced the concept of being the “third place”, your goal should be aiming to be at that second place.
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great
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Good stuff! There is a disconnect between what the consumer and the merchant each wants. The consumer wants perks (special treatment, discounts, priorities, exclusivity, etc.); The vendor wants more customers – read more information. The punch cards are quite meaningless for the vendor in terms of the insight. My beer growler uses a very appealing program but with his 60 beers on tap he has no clue who likes what. At the same time not every customer will join a sophisticated program spending time providing personal information. The key is the balance. No simple answer here. It depends:-) My approach is to consider all the options and play with them.
Again, thanks for the insight!
Hey Teddy, there are some great tips in here that I agree with…quality first and foremost and some of your marketing ideas at the end that include the customer into your business a bit more are great. However, for some restaurants something as simple as a buy 10 get 1 free are still great, simple, easy to implement programs. They take very little management, cost almost nothing and help guests decide to eat at their establishment instead of a competitors where they don’t get any loyalty. If you are running a CoGS at 30% and giving an effective 10% discount buy 10 get 1 free, then you are only discounting the entire customer spend over 11 visits by 3%. With most business budgeting for 2-4% marketing budget I would rather reward my loyal customers than run an ad that costs more and had little targeting. True, more in-depth loyalty programs that allow you to capture guests buying habits, email address etc. are great, but sometimes they are too complicated. One suggestion that I would offer if to require a customer to fill out a form after their 10th. purchase before they get their free widget. This form should have a Name, Cell number, email address and ask 1 questions. Have we been exceeding your expectations on your previous visits, WHY???
Thanks for the article it was well thought out and provided some great tips…
– Ryan Gromfin with http://TheRestaurantBoss.com
I tried to find the Kapture App, but their website kaptu.re seems to have been taken down, and they seem to only have an iphone app. Am I looking in the wrong places?
Great tips but why not reward loyalty if you’re already successful? It’s a default marketing budget expenditure. Certainly, it’s better to state to solicitors of traditional media that you handle advertising, loyalty “in house”. It sure beats coupons or Groupons which only devalue your product and cause bottlenecks when redeemed.