Will restaurants that offer loyalty schemes see better customer retention?

Will restaurants that offer loyalty schemes see better customer retention?

Discount schemes have now become a firm fixture in the UK restaurant scene with many customers never even contemplating eating out without a voucher, but according to a new study the restaurant industry have got it wrong and it is not vouchers and discounts they should be focusing on but loyalty schemes instead.

Yes, vouchers appear to be popular with customers, but it is well known throughout the industry that they are eroding the bottom line for many businesses.

In a recent survey carried out by Plastic Card Services, 2,000 people were interviewed and the results may be surprising to many of us. Nearly half of the 18 to 24-year-olds who were surveyed said that they were more likely to attend a pub or restaurant with a loyalty scheme as opposed to one offering discounts. This is in comparison to one in four people who said they would prefer to take advantage of a discount programme.

Rob Nicholls, managing director of Plastic Card Services, said: " Customers are more open to long-term rewards and being acknowledged for their repeat custom, however effective loyalty schemes within the hospitality sector are few and far between."

So is it the restaurant industry which has misinterpreted the market and the fact that so many people are using vouchers down to the fact that the industry has been flooded with them?

If there were more loyalty schemes on offer then the general UK eating out public would rather make use of those. With many restaurants believing that they have to offer vouchers and discounts because all of their competitors are doing it, some have ended up cutting corners in order to recoup their profits.

Sally Whelan, of the Mystery Dining Company, warned against this as smaller portion sizes and inflated drinks bills will not go unnoticed by diners. In fact such methods can actually damage brand loyalty, whereas loyalty schemes which encourage repeated custom has the opposite effect. When customers are offered their dining experience at a reduced price it can have the effect of them valuing it less. In the future they are less likely to pay full price for a meal that cost them half or a third less just a few weeks or months before.Some of the businesses which have continued to flourish throughout the economic downturn have been the restaurants that have never cut their prices.
This means that they retain their reputation as a quality product which demands a higher price. Though customers may not frequent them on a regular basis they are reserved for special occasions and as such the customers pay the full price for the overall experience. In discounting meals the restaurant is undermining itself to a certain extent, suggesting that the reduced price is all that the food is worth.

Loyalty schemes on the other hand recognise the value of repeated custom and show that restaurants appreciate those who return. Even when restaurants and pubs do not have official loyalty policies in place, it has long been the case that customers who return again and again get a little something for nothing. This may come in the form of free drinks on a birthday or the cost of coffee knocked off the end of the bill, but rewarding loyalty has a more personal touch and maintains perceived value.

Steven Pike, director of the Mystery Dining Company, said: " Restaurants should be engaging with their regular customers, not only to retain them but because their advocacy is also the source of new business."
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