Category Archives: Restaurant Diner Segmentation

Millennials Restaurant Usage and Restaurant Rewards Program Usage

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Last month we released our 2014 consumer study on attitudes and behavior regarding restaurant rewards programs. The study yielded great insights especially with respect to certain consumer segments we explored in the analysis of the results. The Millennials sub-segment is one of great interest to restaurant operators because those among the Millennials group with household incomes of $75,000 per year or more are much more engaged with restaurants and with restaurant rewards programs.

This group visits restaurants more and is more likely to visit restaurants for both business and pleasure. They participate in far more restaurant rewards programs and they are more motivated by restaurant rewards programs. It’s not surprising that they’re more heavily engaged in technology than the older segments of the population. They’re the group that is much more interested in using a mobile app to manage their interaction with rewards programs. They’re also much more likely to use online ordering (through a website and a mobile app) and use services such as Open Table, Yelp, Urban Spoon and Trip Advisor.

Click here to get a free PDF of the Millennials report and click here to access free detailed datasets at the Loyalogy website for Millennials and other segments.

Consumer Segmentation and Behavior – Restaurant Loyalty Rewards Programs

RESTAURANT CONSUMER SEGMENTATION REGARDING LOYALTY REWARDS PROGRAMS

Restaurant Loyalty Segmentation

The Rewarding Diners consumer segmentation of restaurant diners and use of restaurant loyalty rewards programs helps restaurant companies understand dining and loyalty behavior among discrete consumer segments. The segmentation is based upon a U.S. national survey with 1,122 responses from consumers aged 25 to 65 with household incomes of $75,000 or more.

For companies planning or currently executing a restaurant loyalty rewards program, this segmentation enables several things:

  • Improved targeting by understanding those guests that represent the greatest opportunity. Loyalty programs are tie-breakers that allow companies to generate incremental visits by shifting visits within the category from a competitor to your brand. By understanding how many visits per month certain consumers have in the category, you may compare how many visits they have with your brand to understand how many additional visits may be shifted to your brand.
  • Comparison of this national-level segmentation, with breakouts by QSR, casual dining and fine dining, against an individual company’s guest composition. This is best accomplished by comparing the data in this segmentation to a similar survey conducted with your specific guests. This segmentation study provides a framework that may serve as a starting point to use when placing guests into a segment based upon their results to a survey.
  • Better understanding of the makeup and likely needs of segments to maximize relevance in marketing efforts.

The segmentation uncovers six discrete segments:

  • Power Brokers
  • Good Fellows
  • Working Values
  • On The Go
  • Casually Focused
  • Frugassional

POWER BROKERS

Restaurant Loyalty Segmentation

These consumers represent 7% of the population and 27% of the spending. They use restaurants for business and pleasure. They’re young (52% less than 35 years of age), successful (35% have a household income of $150,000) and they source meals from restaurants every day. Their average monthly restaurant visit rate is 30.8 and they use all types of restaurants, with 7.3 fine dining visits, 10.6 casual dining visits and 12.9 QSR visits. The highest percentage of their restaurant category spending is in fine dining (39%).

Restaurant Loyalty Segmentation

Power Brokers are 57% male and well educated – 78% have a bachelor’s degree or graduate degree. Among this group, 37% have paid a fee to join a restaurant loyalty program. They’re highly engaged with restaurant loyalty programs with an average participation of 12.2 programs. They’re highly motivated by loyalty programs – they estimate their visits will increase 43% as a result of an appealing restaurant loyalty rewards program.

GOOD FELLOWS

Restaurant Loyalty Segmentation

This segment is labeled ‘Good Fellows’ because 71% of the members in the segment are male. They use restaurants for business and pleasure. They represent 10% of consumers and 14% of spending. They cluster in the 35-54 age range (58% in that range) and in the lowest income bracket among the sample (45% with household incomes of $75,000 – $99,999). Their average monthly restaurant visit rate is 14.5 and they use all types of restaurants, with 2.3 fine dining visits, 4.9 casual dining visits and 7.3 QSR visits. The highest percentage of their restaurant category spending is in casual dining (39%).

Restaurant Loyalty Segmentation

Good Fellows are 71% male and well educated – 70% have a bachelor’s degree or graduate degree. Among this group, 26% have paid a fee to join a restaurant loyalty program. They’re moderately engaged with restaurant loyalty programs with an average participation rate of 5.3 programs. They’re highly motivated by loyalty programs – they estimate their visits will increase 39% as a result of an appealing restaurant loyalty rewards program.

WORKING VALUES

Restaurant Loyalty Segmentation

This segment represents 16% of consumers and 10% of spending. They use restaurants for business and pleasure. They cluster in the 35-54 age range (59% in that range) and in the lowest income bracket among the sample (46% with household incomes of $75,000 – $99,999). Their average monthly restaurant visit rate is the lowest in the ‘business and pleasure’ category at 6.7. They use all types of restaurants, but at a moderate rate with 1.1 fine dining visits, 2.4 casual dining visits and 3.3 QSR visits. The highest percentage of their restaurant category spending is in casual dining (44%).

Restaurant Loyalty Segmentation

Working Values are 56% male and well educated. 65% have a bachelor’s degree or graduate degree, but of note is the fact that this group has the highest percentage of graduate degrees in the study (25%). Among this group, only 14% have paid a fee to join a restaurant loyalty program. Their engagement level with restaurant loyalty programs is low with an average participation rate of 2.0 programs. However, they’re still motivated by loyalty programs – they estimate their visits will increase 36% as a result of an appealing restaurant loyalty rewards program.

ON THE GO

Restaurant Loyalty Segmentation

This segment represents 10% of consumers and 20% of spending. They use restaurants only for pleasure. They cluster in the 35-54 age range (53% in that range) and in the lowest income bracket among the sample (55% with household incomes of $75,000 – $99,999). They use restaurants regularly, with an average monthly visit rate of 22.3. They use fine dining about twice (2.1 times) per month, but the lion’s share of their restaurant visits are in the QSR (12.4 visits per month) and casual dining (7.8 visits per month) categories. The highest percentage of their restaurant category spending is in casual dining (48%).

Restaurant Loyalty Segmentation

On The Go are 57% female and well educated. 64% have a bachelor’s degree or graduate degree, but of note is the fact that this group has the second highest percentage of graduate degrees in the study (24%). Among this group, only 13% have paid a fee to join a restaurant loyalty program. Their engagement level with restaurant loyalty programs is moderately low with an average participation rate of 3.3 programs. They’re motivated by loyalty programs but at a rate lower than the population average – they estimate their visits will increase 30% as a result of an appealing restaurant loyalty rewards program while the overall population average is 35%.

CASUALLY FOCUSED

Restaurant Loyalty Segmentation

This segment represents 18% of consumers and 18% of spending. They use restaurants only for pleasure. They cluster in the 45+ age range (64% in that range) and in the lowest income bracket among the sample (52% with household incomes of $75,000 – $99,999). They use restaurants about once every three days, with an average monthly visit rate of 10.3. They use fine dining occasionally – about once (.9 times) per month. Most of their restaurant visits are in the QSR (5.3 visits per month) and casual dining (4.1 visits per month) categories. The highest percentage of their restaurant category spending is in casual dining (57%).

Restaurant Loyalty Segmentation

Casually Focused are 65% female and moderately well educated. 56% have a bachelor’s degree or graduate degree. Among this group, only 4% have paid a fee to join a restaurant loyalty program. Their engagement level with restaurant loyalty programs is low with an average participation rate of 1.9 programs. But, they’re motivated by loyalty programs – they estimate their visits will increase 38% as a result of an appealing restaurant loyalty rewards program.

FRUGASSIONAL

Restaurant Loyalty Segmentation

This segment represents 39% of consumers and 11% of spending. They use restaurants only for pleasure. They cluster in the 45+ age range (74% in that range) and in the lowest income bracket among the sample (56% with household incomes of $75,000 – $99,999). They use restaurants about once per week or less, with an average monthly visit rate of 3.8. They use fine dining rarely – about once every three months (.3 times per month). Their sparse restaurant visits are in the QSR (1.9 visits per month) and casual dining (1.6 visits per month) categories. The highest percentage of their restaurant category spending is in casual dining (58%).

Restaurant Loyalty Segmentation

Frugassional are 65% female and moderately well educated. 57% have a bachelor’s degree or graduate degree. Among this group, only 1% has paid a fee to join a restaurant loyalty program. Their engagement level with restaurant loyalty programs is very low with an average participation rate of just .6 programs. But, they’re motivated by loyalty programs – they estimate their visits will increase 31% as a result of an appealing restaurant loyalty rewards program as compared to 35% for the overall population.

IMPLICATIONS

Two segments – Power Brokers and On The Go – represent just 17% of consumers but 47% of spending. On the other end of the spectrum, Frugassional and Casually Focused represent 57% of consumers and just 29% of spending.

For fine dining restaurants, Power Brokers represent the greatest opportunity. They dine out daily, use fine dining restaurants on a regular basis and spend the greatest percentage of their restaurant spend with fine dining restaurants. They’re quite likely to pay a fee to join a rewards program and are highly motivated by rewards programs. Good Fellows are a secondary focus for fine dining restaurants and a primary focus for casual dining.

For casual dining restaurants and QSR, On The Go represents the greatest opportunity. They dine out more than 22 times per month and are more focused on casual and QSR than fine dining. They’re not as highly motivated by rewards programs as other segments, but they still estimate a visit rate increase of 30% as a result of a good loyalty program. Good Fellows and Casually Focused are a strong secondary focus for casual dining because of their concentration of spending in that category and their level of motivation as a result of loyalty programs.

The Working Values and Frugassional segments are not strong targets for restaurant rewards programs. They are motivated by rewards programs, but their lifestyle or life stage dictates a limited level of restaurant usage. Their conditions may change in a manner that encourages or allows more restaurant usage, but restaurant companies should be mindful that if they engage with these consumers in a loyalty program, they will demonstrate a low visit rate.

Loyalogy Unveils Loyalty Program Roadmap For Sagging Restaurant Sales

Restaurant Owner with a Big Idea

 

 

Asheville, NC, February 25, 2013 – Loyalogy, provider of loyalty program consulting and analysis services to the restaurant industry and publisher of the LoyaltyPulse research study on consumer attitudes about restaurant loyalty rewards programs, announced its Loyalty Program Roadmap for Sagging Restaurant Sales.

“Restaurant companies have been hit by a perfect storm of economic conditions causing a downturn in sales in early 2013.  This step-by-step, how-to guide helps restaurant companies with existing loyalty programs develop and implement successful promotions that leverage the data from their program,” said Dennis Duffy, President of Loyalogy.

The roadmap includes specific guidelines regarding how to analyze the data from a loyalty program and provides examples of the types of promotions most likely to generate incremental sales.  The roadmap is organized into five sections:

  1. Conduct a quick analysis of behavior among members of your customer loyalty program.
  2. Construct several offer ideas that provide extra motivation for loyalty program members to visit your restaurant instead of one of the other choices they have within your category.  Turn these ideas into limited-time promotions and select targeted members from the population of your loyalty program.
  3. Withhold a control group so you can determine the incremental sales generated by the programs.
  4. Implement the promotions and measure results against the control group daily.
  5. At the completion of the promotion, assess to determine the best performers.  Modify as necessary and incorporate periodic (not perpetual) promotions to enhance the effectiveness of your loyalty program in good times as well as bad times.

Read the complete roadmap report at the Loyalogy Website.

ABOUT LOYALOGY

Founded by Dennis Duffy, with more than twenty years of experience developing, managing and analyzing customer loyalty programs, Loyalogy provides loyalty program development, consulting, project management and database analysis services to restaurant companies.  Loyalogy is also the publisher of the LoyaltyPulse research study which finds that restaurant rewards programs may increase guest visits by as much as 35%.  For more information, visit www.loyalogy.com.

CONTACT

Dennis Duffy – President, Loyalogy, Inc. at 828-333-5860 or dennis@loyalogy.com.

Loyalty Program Roadmap for Sagging Restaurant Sales

Restaurant Owner with a Big Idea

A PERFECT STORM

A perfect storm of negative economic factors has caused a downturn in restaurant sales beginning mid-January 2013.  For restaurant companies with existing loyalty programs, this is the time to act deliberately and strategically to leverage the potential of the program to help weather the downturn.

Restaurant loyalty rewards programs are strategic, not merely tactical.  They create a tie-breaker in the mind of the consumer and generate incremental visits that consumer research shows may amount to a 35% (see the LoyaltyPulse Study).  As a byproduct of a loyalty program, restaurant companies accumulate transaction-level customer data that is of vital importance in understanding and influencing guest behavior.  It’s always important for companies to use this information wisely, but it’s especially important in a sales downturn as restaurant companies seek to:

  • Understand the composition of the sales downturn.
    • How much is a result of existing guests coming in fewer times?
    • How much is a result of existing guests coming in as much but spending less?
    • How much is a result of fewer new guests trying the restaurant for the first time?
    • Develop data-driven marketing tactics that increase sales among loyalty program members in a manner that is measureable.

DELIBERATE, MEANINGFUL AND MEASUREABLE ACTION

One of the best ways to address current guests is through an existing customer loyalty program.   Following is a roadmap for action:

  1. Conduct a quick analysis of behavior among members of your customer loyalty program.
  2. Construct several offer ideas that provide extra motivation for loyalty program members to visit your restaurant instead of one of the other choices they have within your category.  Turn these ideas into limited-time promotions and select targeted members from the population of your loyalty program.
  3. Withhold a control group so you can determine the incremental sales generated by the programs.
  4. Implement the promotions and measure results against the control group daily.
  5. At the completion of the promotions, assess to determine the best performing promotions.  Modify as necessary and incorporate periodic (not perpetual) promotions to enhance the effectiveness of your loyalty program in good times as well as bad times.

Targeted promotions conducted through a loyalty program are superior for several reasons.  [Note, this assumes the more traditional model of loyalty programs in which there is something such as points accumulated over time that convert to value, rather than programs that are based on periodic surprises.]

  • Promotions conducted through a loyalty program typically include offers that are built around the “currency” of the loyalty program (points or whatever you call the currency in your program).  Promotions that use this currency encourage more future visits because the more value a member accumulates, the greater motivation the member has to come back to reach the next reward.  It creates what is known as a “cost of defection.”  I lose something if I stop coming back.
  • Promotions conducted through a loyalty program typically do not include an immediate discount.  Instead they use the deferred value that is a principle of many loyalty programs.  Members must continue to visit to accumulate enough to reach rewards of value (or experience the previously described cost of defection).  This constitutes the tie-breaker characteristic of a loyalty program.  As consumers cut back and visit less, they still visit.  The restaurant that provides them with the great value gets a greater share of the visits from that consumer in the restaurant category.

STEP 1 – QUICK ANALYSIS

Companies with loyalty programs have the ability to examine guest-behavior in detail and understand customers far better than those without loyalty programs.  Unfortunately, many marketers fall into the classic trap of relying upon simple statistics that disguise the genuine diversity of your guest base.

Using averages to describe the behavior of a larger group of people (such as members of a loyalty program) can be a handy way to provide a sound bite metric (“our members come in about five times per year”).  However, averages are of no use in trying to understand unique groups and how best to encourage incremental visits from those groups.  Furthermore, averages lie.  Averages lead one to believe that most people come to your restaurant about the average number of times, when in fact very few come in the average number of times.  If the average is five visits per year, there are many who come in one, two or three times and quite a few who come in ten or more times.

The best way to understand the behavior of your loyalty program members is through segmentation analysis.  The best measure of what a guest will do in the future is what they have done in the past.  That is a fact.  If you haven’t conducted a segmentation analysis of your membership base on a regular basis, now is the time to do so; quickly and expeditiously.

Gather past guest visit transaction data from your loyalty program database.  At least six months but preferably one year.  No matter what loyalty technology platform you’re running on, there will be a way to get your hands on historical details of individual guest visit transactions.  At a minimum for a quick analysis you’ll need the following items for each guest visit:

  • Member number.  Every member of a loyalty program has some unique identification number within your system.
  • Transaction date.
  • Amount spent.
  • Member activation/enrollment date (the date upon which a member started participating in your loyalty program – used to understand those who are relatively new versus those who are more tenured).

There are many other data elements you might use in a more comprehensive segmentation analysis, but these are adequate for a quick analysis under the pressure of sagging sales.  Summarize visits and spending by member over the past year.  Group into segments based upon common-sense visit counts.  If you’ve heard of ‘deciles’ – set that concept aside.  Grouping members into ten equally-size segments (equal either by counts or spending) is a method used in ancient direct marketing efforts, but visit segmentation in a restaurant setting must make common sense and have fewer segments.

Shoot for 4-6 segments and think about a simple way to organize.  The example used here applies to a casual-dining restaurant and has a higher frequency and lower spend per visit than a fine dining restaurant (those differences represent a subject for a much longer examination than may be accomplished here).  The principles of segmentation apply regardless of the type of restaurant and its associated visit frequency and average check, but the numbers can be quite different.  This is just one example for the purposes of this exercise.  The decisions you make may vary, but this provides an example of the methodology which combines some analytics with common sense and the ever-present principle of “let’s not over-think this.”

Consider this approach to grouping the segments:

  • Those with just one visit.  This will be a large group.  It’s a classic challenge in loyalty programs to get those with one visit to have the second visit, the third and so forth.
  • Those with “a few” visits.  These might be newer members ramping up, or those who come in less that once per quarter.
  • Those who come in with more regularity, but not necessarily “regulars.”  Quarterly or more, but far short of monthly.
  • Those who appear to have a pattern for more frequent than quarterly, but the pattern is not quite monthly.
  • Those whose pattern of frequency appears to be monthly or more frequent.

Using some fictitious data, the segmentation grid might look like this.  Note we’ve included a simple letter code to identify each segment so that it’s easier to refer to later in this roadmap.

Restaurant Loyalty Program Segmentation Example

This single-page summary of member behavior can, by itself, be eye-opening if you haven’t conducted such analysis on your program in the past.  The more important characteristic of such a segmentation model is its ability to help you break down the challenge into smaller pieces.  There are no silver bullets in marketing, although many still seek the single big idea that will catapult them to success or pull them out of a crisis.  Real success comes from a comprehensive array of strategies and tactics that are measured and continually improved.  Measurement ensures a method to your madness and helps you avoid the old saying, “I don’t know where we’re going, but we’re making good time.”

STEP 2 – CREATE OFFERS AND DEFINE TARGETED RECIPIENTS

So what do we do with these groups?  We construct promotional offers that are in the context of the loyalty program.  The natural approach for restaurant operators during times of sagging sales is to create menu-item based promotions combined with discounts to drive traffic.  Such promotions are important for attracting new guests (loyalty programs rarely attract new guests, but instead engage those new guests after they have experienced the restaurant for the first time).

Here’s what we might want to do with these groups:

  • Segments A and B (lower frequency).  Let’s present these groups with a strong, but short-term offer.  Double points on all purchases for 30 days.
  • Segments C, D and E (higher frequency).  Let’s present these groups with an offer that is not quite as strong, but with a longer duration.  A 50% bonus on all purchases for 60 days.

The double point bonus for the lower frequency segments helps to get those guests more engaged and potentially build a strong pattern for the future.  The 50% bonus for the more frequent guests who are already engaged with the program encourages those members to consolidate as many of their casual-dining visits with your restaurant versus the other competitors that are in their consideration set.  In tough economic times that create sagging restaurant sales, consumers seek maximum value.  These promotions create maximum value.

These promotions are not broadcast to your entire customer base.  They are delivered via e-mail directly to each selected member.  The offer is not made public; it’s presented as “an exclusive, limited-time offer for you”.  The mechanical process of awarding the bonuses is something configured within your loyalty program technology platform.  Assuming you are operating within a platform that has the expected functionality in today’s loyalty landscape, this shouldn’t be a terribly complicated configuration process.

STEP 3 – WITHHOLD A CONTROL GROUP

How can we determine how well this works?  Use the time-tested process employed with scientific experiments and many marketing programs: a control group.  A control group is a randomly-selected group, extracted from a larger group.  Those who are selected to receive the offer are considered the “test group” while those who are withheld at random and do not receive the offer are considered the “control group.”  While analyzing the performance of the program, the test group is compared to the control group.  The only difference between the two is that one group received the offer while the other group did not.  Therefore, any difference between the behaviors of the two groups may be conclusively attributed to the promotion itself.

Here’s an example of a matrix that includes the counts in the test groups and the control groups.  We have used 25% as the control group percentage.  Decisions about control group size are often made with a combination of statistics to determine margin of error for comparisons, combined with a dose of pragmatism.

Restaurant Loyalty Program Test and Control Group Matrix Example

STEP 4 – IMPLEMENT AND MEASURE

Once you have the mechanical process of handling the bonus points configured in your loyalty program technology platform and you have the language and creative content developed for your targeted e-mails, you’re ready to finalize the selection of your test and control groups and get this deployed.  Once the promotions have been deployed, measure regularly rather than waiting until the promotions have completed.  A daily review is not uncommon.

Now is the time to elaborate on the process of comparing the results of the test and control groups.  If the two are the same size, it’s relatively easy.  Just compare total visits and total spending from one to another and you’re done.  However, it’s often the case that the two are not the same size, so we should explain the nuance of making such comparisons.

Because in this case the control group is smaller than the test group, the spending and visits for the control group must be normalized.  The normalization process takes the rate of spending and visits in the control group and extrapolates those rates as if the control was the same size as the test group.

  • Take the total spending and visits in the control group and divide by the size (number of members) of the control group.  This yields spending per member and visits per member in the control group.
  • Multiply the control group spending per member and visits per member by the size (number of members) in the test group.  This yields the extrapolated total spending and total visits as if the control group was the same size as the test group.

Restaurant Loyalty Program Test versus Control Analysis Example

STEP 5 – PROMOTION COMPLETION: ASSESS, QUANTIFY AND LEARN

Once the promotional period has completed, conduct a final review seven days after the conclusion.  In this final review, break down the test and control evaluation among the five different segments (A, B, C, D and E).  Analyze the seven days after the end of the promotion because it is not uncommon to experience a “halo effect,” describing the phenomenon in which the test outperforms the control group for a short period after the conclusion of the promotion.  Promotions such as these will almost always generate incremental sales; it’s just a question of how much incremental sales.  A typical range to expect is 5% to 15%.  One additional element of cost to include in your final analysis is the cost of the extra points.  If, for instance, your program has what appears to be a “face value” rewards percentage of 10% (you earn one point per dollar and 100 points converts to a $10 reward; 200 points converts to $20, etc.) and your food cost is 30%, then for planning purposes you can assume that a point has a $.03 (that’s three cents) cost value.  NOTE: the face value of a point is $.10 (ten cents) because in this example 100 points = $10, so one point = $.10 (ten cents).  But the actual cost is the food cost percentage.  Using 30% in this example, 30% of $.10 (ten cents) is $.03 (three cents).

You’ll learn a great deal from this test.  The most important thing you’ll learn is how to go through the process from analysis through planning and execution and measurement.  This can be done quickly these days.  It shouldn’t take months to get something going; more like a couple of weeks.  Once you’re proficient at this it will be second nature and you should test promotions periodically in a quest to outperform the last great promotion you ran.  The key is to not execute these promotions on a predictable schedule.

ABOUT CHECK-LEVEL DETAIL

If you have check-level detail data (each individual item on the check) that is accessible through your loyalty platform, you may be tempted to develop a highly individualized approach to this.  Proceed with caution.  If you are more advanced in your analytic and marketing efforts, you may find success with this.  However, when you’re in the early stages of developing your proficiency with the analytics, planning, execution and measurement it’s best to keep it relatively simple.  Once you have benchmarked the incremental spending you experience with the relatively simple approach and decide to put your toe in the water and try something more complicated using check detail, you’ll have a point of comparison.  Does the more complicated approach generate a better return?  If so, does the incremental return adequately compensate for the additional resource (time, money) consumption associated with the more complicated approach?

SETTING THE RECORD STRAIGHT ON THE TERM ‘LOYALTY’

Some may read this and say “that’s not real loyalty – that’s just transactional loyalty.”  There’s quite a bit of this discussion that goes on with many of the people who operate in the conceptual loyalty space.  I’ve seen plenty written and I’ve heard plenty of speeches that state idealistic beliefs about the relationship between a brand and its customers.  Some describe a level of loyalty that a husband has towards his wife or that a German shepherd has towards its person.  Granted, there are some who absolutely love a company they do business with.  Those are the rare customers that are ambassadors of a brand and spread the word but they do not by themselves make up a population that can come close to supporting that business.  For the lion’s share of customers, a brand satisfies a need for them in a manner that develops into a positive feeling about the brand, but that brand, in most cases, gets a share of that customer’s spending rather than all of that customer’s spending.  That is very much the case in the restaurant business.  And that’s the reality of the application of loyalty marketing in the restaurant business.  That’s a fact.