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QSR Feature
The Rise of Loyalty
Following retail’s lead in connecting and communicating with customers.

When Nick’s Pizza and Pub decided to implement a loyalty program to replace their paper gift certificates, they wanted to give something back to their faithful customers. With the success of the program, Nick’s customers are now giving the restaurant something in return: a larger customer base and increased sales.

Nick’s two Chicago-based family-owned eateries have enrolled approximately 15,000 customers into its loyalty program since September 2004 and continue to add more patrons every week. Once they become a member by providing some basic information about themselves, diners qualify for cash discounts by building points based on the dollar amount of purchases. In the future, Nick’s plans to expand the program to include free items, complimentary dinners for four, or banquets for as many as 50 people, free trips, and retail merchandise.

“It’s been a great success,” says Matt Calabrese, controller for Nick’s. “Our lunch business grew from 3 percent to 8 percent. The new card is more secure and it’s a way to give something back to our repeat customers.”

New technology has made loyalty programs like Nick’s easier to implement, track, and promote. Long gone are the old punch card programs, which could be cumbersome, time consuming, and prone to fraud. Paper gift certificates are fading from the landscape, too.

The loyalty program at Nick’s is administered by Atlanta-based Radiant Systems. The program is integrated into existing POS systems so that a swipe of the card through a payment terminal instantly stores payment information. Nick’s can easily access this data, which allows the pizzeria chain to create target ads, promotions, and mailings exclusively for loyalty program participants.

Using technology already in place for the processing of credit and debit cards, which account for about 25–30 percent of sales, an operator can easily implement a loyalty program. Back-end technology tracks and stores data. Customer purchases, frequency and exact time of visits, and a myriad of additional information is recorded and stored in milliseconds.

Retailers long ago got the picture. You can trace rewards programs back to the first airline frequent-flier plans. In the 1990s, the grocery store segment, big-box retailers, and hotel chains picked up the idea. Today, among the major pharmacy, book, music, and office supply chains it is not uncommon to offer some sort of loyalty card—often for a fee.

Whether called loyalty, gift, or stored value, these plastic cards entitle their holders to a variety of discounts and other benefits. Most cards are similar to a credit card with a magnetic scan strip or barcode. Smaller versions fit on key chains for easy access.

The goal of these cards is to give a sense of value to the customer and drive repeat visits. Rewards are based on a variety of factors, depending on the needs of the individual retailer. Some are simple—a discount after 10 purchases, for example. Others are based on spending, with each dollar amount converted to a specific number of points. Additional points might be rewarded for visits at off-peak times to build traffic.

Restaurant operators have been slow to embrace loyalty programs due to a number of issues. Training and speed of service concerns are among the most often cited. Most retailers train cashiers to initiate contact with the customer at check out, which provides a perfect opportunity to solicit enrollment in a loyalty program. In fast-food restaurants, however, speed is such a major concern.

Additionally, confusion about the ultimate benefits of a loyalty program adds to the hesitancy of some operators, as does an unwillingness to make the necessary technology upgrades. And discounting is often looked upon as beneficial to corporate coffers but not franchisees’.

“In the past three years we’ve been doing a lot of educating,” says Jeff Lipp, CEO and president of Chockstone, Inc., a Portland, Oregon–based company that provides stored value, customer loyalty, and payment processing solutions. “Many companies have already been through the gift card and stored value card programs. Now, they’ve got a flavor of what could be accomplished with a loyalty program. There has been a big increase in the level of knowledge and an increase in budgets for a loyalty program.”

Chockstone supports a gift and loyalty card program for 22,000 Subway locations in the U.S. and Canada. Another client is Tully’s, a Seattle-based chain that sells coffee beverages.

According to Chockstone’s research, gift cards were the top gift purchase in 2005. More than half of gift card recipients spend more than the gift card amount at the retailer. Converting gift card users to loyalty members can build additional long-term business.

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