Loyalty on the Go: Boost Unit Revenue with Mobile Loyalty Programs
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Loyalty on the Go: Boost Unit Revenue with Mobile Loyalty Programs

Technology in the mobile space is moving at blazing speed. Normally, franchise systems tend to run a bit behind the curve when it comes to new technology, but not so in the loyalty space. We are seeing some brands get extremely aggressive with new technology, but it does not always seem to deliver the results they are looking for.

More often than not, franchisors may not even know what the results are, as there are challenges tracking the ROI on these campaigns. Most of the latest and coolest-looking technology in the space has not been integrated with existing technology, making tracking the results of a campaign difficult at best.

I have seen many of these new, cool technology platforms come along, but at the end of the day they are engaging between only 1 and 5 percent of a brand's total customer base and are not really driving any new ones in. With a strong loyalty program, it is not uncommon to see average ticket lifts of 17 percent and an increase of visits by as much as 50 percent.

Another challenge is that there are so many new high-tech players in this field that haven't been properly vetted or that don't seem to have a good handle on the real needs of a franchise system. Many of those I have seen come along over the past couple of years have great technology, but their end game is to build a database of consumers that they can market not only your product and services to, but also those of your competitors. So instead of building a database of customers loyal to your brand, you are helping your vendor build a database of customers loyal to their platform!

In those cases you end up with a customer who comes to see you only when you have a compelling offer on your vendor's platform. What you really want is a customer who is highly loyal to your brand and who will come to see you not only when you have a great offer or "reward," but also at any other time they want or need your product or service.

The best loyalty programs are designed to "reward" your customers for doing something they would not ordinarily do. For example, you should not give a reward to a customer for purchasing something on their first visit. A customer should be able to earn points for that first visit, but not be able to redeem them until they come in the next time. You are driving the customer to do something extra, to make that extra visit. To drive customers in, you can make an offer that is time-sensitive, such as a text campaign that targets your loyalty database when business is slow. Sending an offer that can be redeemed only if they come in in the next few hours is highly effective. When is the last time you received a text and did not read it right away?

Also, take a look at the value of that "reward." If the value is the exact amount of a typical purchase, you are just as good doing a 2-for-1 coupon. You want the value of the reward to be either a little less than a typical average ticket or a little more. If you are a pizza place and the typical average ticket is $20, your reward should be $15 or $25. If it is $15, the customer will have to pay a bit more on top of the reward to get their order. If your reward is $25, the customer will have to come in two times to get the full reward, with only $5 coming off the third ticket; or, more likely, they will purchase additional items, which will probably take them to a higher ticket amount than the reward was worth, which helps you make up for the cost of that discount.

Let's get back to what the numbers mean to your franchisee, using an average frozen yogurt shop as an example. If your store has an average ticket of $7 and does 4,000 total transactions per month ($28,000), you should be able to get around 25 percent (1,000) of your customers into your loyalty program. If those customers boost their check average by 17 percent, that adds $1,190 to sales (.17 x $7 = $1.19 x 1,000 = $1,190). And if those 1,000 loyal customers also increase repeat visits by 50 percent, that's the equivalent of an additional 500 visits, or $4,095 in monthly sales (500 x $8.19). Add those gains together, and you just increased total sales that month by $5,285 or 18.9 percent!

So what does this mean to a franchisor? If you have a royalty fee of 5 percent, you just boosted your royalty revenue by $264.25 per store per month. If you have 100 stores, you would be increasing your revenue by $317,100 per year ($264.25 x 12 x 100)!

Not a bad ROI--and all trackable if done correctly by integrating all the pieces of your loyalty program into a single data host.

It is my belief that your email marketing, text marketing, online ordering, orders coming in from smartphone apps, and regular transactions at the POS should all be integrated in the same loyalty host. This way, when you do campaigns you can track the results of email versus text marketing, for example, and get a handle on what is actually driving your business.

Involve everyone

When making decisions on a new loyalty program, you should have all the key players on your staff in the room to talk about how this new program may affect their part of the business.

  1. Operations: Will it work on the current POS?
  2. Marketing: Will it achieve the desired results? Can you validate them?
  3. Sales: Will it enhance your brand image and thus make closing deals for new locations easier? How much easier would it be to close a deal on a location if you already knew you had 2,000 loyal customers in that market driving to another of your locations farther away? Even better, start identifying markets by using loyalty data to determine where you should be focusing your growth efforts.
  4. Finance: Cost is important, but does the program have a measurable ROI?

In summary, a loyalty program can do wonders for your business, but do your homework and think it all the way through to what your real goal is: ROI!

Tom Epstein is CEO and founder of Franchise Payments Network, an electronic payments processing company dedicated to helping franchisors and their franchisees improve system performance, increase revenue, and reduce expenses. Contact him at tomepstein@franchisepayments.net or 866-420-4613 x1103.

Published: November 27th, 2013

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Franchise Update Magazine: Issue 3, 2013
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