Driving Engagement-Based Loyalty

Presented by:

Rewards Network

September 2012

Developing customer engagement as a

sustainable business practice

Building a customer-centric

loyalty/engagement program

Understanding customer value and

defining customer base

Communicating through multiple channels

Creating a platform for feedback

and an ongoing dialog

Conclusion

About Rewards Network

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4

6

8

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DINER LOYALTY

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS REWARDS REWARDS REWARDS REWARDS

REWARDS

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

DATA-DRIVEN

LIFETIME VALUE

REPEAT DINERS ENGAGED CUSTOMERS

ENGAGED CUSTOMERS

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

REWARDS

FREQUENCY

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

The restaurant industry is buzzing with the idea of engagement. There are many ways to increase engagement inside restaurants: bring the kitchen to the front of the house, hire and train staff to be engaging, provide technology to connect or educate the customer. The list goes on.

All of these methods are examples of controlled engagement, meaning strategies used once the customer walks through the door. But how do you engage a customer outside the four walls of a restaurant? More importantly, how do you influence and measure this engagement?

Just as trends such as bringing the back of the house experience to the front are surfacing in the industry, we suggest that the value of measuring and engaging with your most profitable (or potentially profitable) customers should come to the forefront, as well. There are many factors that influence engagement. Understanding these factors is key to providing a sustainable loyalty program that influences how often customers visit and how much they spend. A sustainable loyalty program should be based on engagement, managing the data points that drive engagement and the tactics that support the data. Loyalty is no longer about a frequency card or a free item for many purchases. Loyalty is about understanding online and offline consumer activity from a demographic, psychographic and behavioral point of view and then how they connect.

Gone are the days of one size fits all. Consumers expect and demand customization, from their sandwiches, salads or wraps to their loyalty programs. The rise in access with technology has given consumers many ways of obtaining information and sharing their views. They are listening to each other and expecting more from every experience. You must take a different approach to marketing to increase customer loyalty.

DINER LOYALTY

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS MARKET TRENDS REWARDS REWARDS REWARDS REWARDS REWARDS

REWARDS

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

DATA-DRIVEN DATA-DRIVEN

DATA-DRIVEN

Building a customer-centric loyalty/engagement program

Engagement for today’s consumers has multiple touch points. They consider their interactions with your brand not just while in your restaurant, but also the experience leading up to and after their in-restaurant dining experiences. In order to meet consumer expectations and needs in today’s society of 24/7 communication, it is imperative for restaurants to have consistent, reliable dialog points with them both online and offline.

Customer engagement starts with the digital experience. According to NPD’s Crest® _{(January–March,}

2012 data), an organization that rigorously tracks the foodservice industry, consumers use online and smartphone marketing messages when selecting a restaurant, including menu details, general information, recommendations/reviews and restaurant locations. They report that 26 percent of all online-marketing-influenced restaurant visits were first-time visits. Simply being online is only a starting point to truly reap the benefits of digital marketing, it is imperative that the online messaging engages your customers and that ongoing communication is relevant and targeted to each individual.

Rewards Network data indicates that our members who are engaged online with loyalty programs (i.e. via opt-in marketing, taking surveys and providing reviews) not only spend more than those who are not engaged, but also have a higher visiting frequency.

Multiply that by your loyalty program participants, and the return on investment is exceptional.

To put this in perspective, engaged program members spend

5 times

more

than non-engaged members and visit

10 more times

per year.

LIFETIME VALUE

REPEAT DINERS ENGAGED CUSTOMERS

ENGAGED CUSTOMERS

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

REWARDS

FREQUENCY

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

In addition, Rewards Network data shows that by using a bonus structure to entice dines, you acquire the ability to modify behavior with targeted rewards. As a matter of fact, engaged diners that were incented to dine more often with a specific offer relevant to them increased spend by over 14 percent (Rewards Network data, 2012).

The ability to motivate a change in customer behavior is reliant on the engagement of the

customer and your ability to communicate precisely with that customer. While targeted and relevant communication is a key component to engaging with your customers online, it is still just one component. A true, sustainable engagement/loyalty program starts with:

• Understanding your customer base by segmenting their value • Defining segments’ motivation factors

• Communicating through multiple channels • Customizing the dialog by segment • Allowing for feedback and dialog • Measuring results

Online Targeted Emails Mobile Email/Websites

Smartphone Apps Comment Management System

SEO/SEM

Surveys Analytics Spend Analysis Market Share/Comparison Comment Management System

Offline Back of House to Front

Menu Customization Technology/In-House Connectivity

Friendly Engaged Staffed

Multiple Touch Points of Engagement

Enhance Experience

Reinforce Experience

Engagement-Based

Loyalty Programs:

Recency

Frequency

Monetary Value

DINER LOYALTY

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS MARKET TRENDS REWARDS REWARDS REWARDS REWARDS REWARDS

REWARDS

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

DATA-DRIVEN DATA-DRIVEN

DATA-DRIVEN

Understanding customer value and defining customer base

RECENCY,

which is based on the date of a customer’s most recent visit

FREQUENCY,

which is based on how often a customer visits a restaurant

MONETARY VALUE,

which is how much a customer spends

Many tools exist to help you segment your customers. Rewards Network’s experience with the RFM (Recency, Frequency, Monetary Value) model suggests that it is an advantageous approach for defining and rewarding your customers, motivating behavior changes and creating a sustainable, profitable loyalty program.

To come up with an RFM score, three individual scores are combined:

Each customer is assigned an RFM value/score. The RFM model is a used to analyze customer

behavior and define market segments. Does a customer who comes in more frequently but spends less become more important than one who comes in less frequently but spends more when dining? The answer is no, and that both are valuable; the key is to utilize this known value to customize marketing strategies. These customized marketing strategies will result in a more engaged and loyal customer and they will increase your restaurant’s diner value.

Rewards Network uses number scales when determining the values for R, F and M. The table below demonstrates how each value is determined.

RECENCY

FREQUENCY

250

+250

+250

+250=

250

+250

+250=

250

+250

+250

+250=

1

1

1

2

2

2

3

3

3

4

4

4

5

5

LIFETIME VALUE

REPEAT DINERS ENGAGED CUSTOMERS

ENGAGED CUSTOMERS

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

REWARDS

FREQUENCY

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

Once we assign the value for each part, each score is multiplied and combined to create a final composite score:

For example, if a customer has a Recency score of 4, a Frequency score of 3 and a Monetary Value score of 2, their Composite RFM score would be 432.

Based on the RFM score of a customer, specific marketing messages and rewards can be chosen and utilized to motivate them. Different customers may have different tipping points for motivational change, and by utilizing targeted messaging and RFM scores, customer behavior can be changed. For example, if a customer has an RFM score of 545, they are one of your best customers. They are coming in the most, spending the most and returning the most. If you have another customer with a score of 241, they are coming in frequently, but they have not been in recently—and when they do, they are not spending a lot of money. With our program and targeted messaging, the goal is to get them to come in and to spend more money once they do.

In addition to the RFM score, we consider the customer’s demographics. For example, there might be two customers with an RFM score of 545, but one could be a 65-year-old male and the other a 27-year-old female. Their marketing messaging will be different based on their demographics. Rewards Network utilizes this targeted message based upon RFM in order to build specific messaging and achieve positive results in changing behavior.

Understanding and motivating your customer base is just one touch point to keep the customers engaged. Another factor is utilizing top-of-mind strategy to communicate to the customer through the use of multiple channels and open dialog.

(R

x100

)

+

(F

x10

)

+

(M

x1

)

=

RFM

Results from the RFM model are measurable. As a result of a targeted messaging campaign,

those members dined at participating restaurants

11.71%

more often and spent

14.44%

more.

DINER LOYALTY

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS MARKET TRENDS REWARDS REWARDS REWARDS REWARDS REWARDS

REWARDS

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

DATA-DRIVEN DATA-DRIVEN

DATA-DRIVEN

Communicating through multiple channels

In today’s society, consumers are connected at all times, and they expect you to be, as well. Utilizing technology to help facilitate this connectivity is your best resource. While email can help you motivate and change behavior through targeted and relevant communication, there are multiple other online channels that work simultaneously to increase engagement.

By using mobile devices, web services, smartphone applications, social media and Rewards Network’s own Comment Management System (CMS), you can go with your customer wherever they are, providing them with the constant contact that they desire.

In 2011, Rewards Network sent over

105 million

promotional emails on behalf of our

restaurant clients, and over

27%

of those emails were viewed on a mobile device.

In addition, according to Google (November, 2011), 30 percent of all searches for restaurants are done from a mobile device. This underscores the importance of mobile-optimized emails and webpages, and the importance of communicating with customers in a way that is most meaningful to them.

It’s also important to note that this statistic only refers to online searches, without taking into account the smartphone applications that many consumers use on a regular basis to search for restaurant details. These smartphone applications are also necessary in order to provide instant access to your restaurant for when your customers demand information, providing instant access to your restaurant. And by using location-based software when a potential customer is searching for a restaurant nearby, you can ensure they find yours as a viable option with door-to-door directions, menus and reviews. As technology industry trends continually evolve, your loyalty marketing and communication strategy must keep up with these changes in order to continue engaging your customers.

LIFETIME VALUE

REPEAT DINERS ENGAGED CUSTOMERS

ENGAGED CUSTOMERS

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

REWARDS

FREQUENCY

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

One of the most engaging, valuable communication channels is feedback. Understanding customers’ point of views of their experiences is instrumental to a restaurant’s operation. Customers truly love to share their opinions, but in general they are not comfortable providing them face to face. The ability for customers to be anonymous has its appeal, and surveys or comment systems fulfill this desire.

Rewards Network has been utilizing surveys and our CMS to assist our operators since 2005, and our diners have been helping operators by sharing suggestions, compliments and thoughts about their experiences.

With almost 10 million diner surveys completed, our diners have provided feedback on our program restaurants including scale scores for Food, Service, Cleanliness, Value and Overall Experience. While the food (quality and taste) remains top of mind for both diners and operators, it is interesting to note that the service score is the attribute that most often drives the overall experience score to a greater degree than the other attributes. Taking a snapshot from the past two years, you can clearly see that service continues to showcase itself as a determining factor in experience. This underscores the idea that our diners expect more than just great food.

4.15 4.10 4.05

3.98

Q3 2010 Q4 2010 Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012

Based on consolodated dated from program restaurants July 2010–July 2012

Overall Average Service Average

DINER LOYALTY

BOOST PROFITS

BUSINESS

STRATEGY

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS MARKET TRENDS REWARDS REWARDS REWARDS REWARDS REWARDS

REWARDS

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

_DATA-DRIVEN

DATA-DRIVEN DATA-DRIVEN

DATA-DRIVEN

Creating a platform for feedback and an ongoing dialog

Surveys are important for restaurant decision making, but replying to comments from the

surveys—especially in this connected environment—is what engages customers and drives significant loyalty.  By giving customers the option to share their restaurant reviews with friends through their Facebook page, it allows the restaurant to “go viral” quickly and easily. It also provides an additional engagement opportunity for the operator to comment on or “like” the posting. Building upon the idea of relevant and targeted messaging to engage customers, Rewards Network data suggests that the use of direct communication, both online and offline, produces the greatest return.

Our diners who received a response to their comments revisited that restaurant 20 percent more than they had previously to the response; they also spent 16 percent more money at that restaurant than they did before they received the response. Talking directly to your customers while they’re online and addressing their needs even after they have left your restaurant leads to greater sales.

Engagement should not be confined to the four walls of your restaurant. It starts in the digital space and continues to live digitally long after the dining experience has ended. Engagement increases loyalty with your most profitable customers.

Understanding that not every customer presents the same value to your restaurant is a new way of defining your marketing strategy. Segmenting your customers according to their value through recency, frequency and monetary value can produce an efficient return for your marketing dollar. Operators have always been drawn to just increasing volume and acquiring more customers, but what if those customers who are already filling your seats are actually more important to sustaining profitable business? What if you could increase the volume of customers and then get them to be more loyal through targeted messaging, rewards and engagement? Not all customers are the same, and being able to quantify their differences is the key to unlocking a sustainable growth strategy that weathers all environments. Keeping customers engaged will continue to provide growth for your

DINER LOYALTY

BOOST PROFITS

RATINGS & REVIEWS

BUSINESS

STRATEGY

MARKET TRENDS

MARKET TRENDS

MARKET TRENDS MARKET TRENDS REWARDS REWARDS REWARDS REWARDS REWARDS

REWARDS

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

_DATA-DRIVEN

DATA-DRIVEN DATA-DRIVEN

DATA-DRIVEN

DATA-DRIVEN

LIFETIME VALUE

REPEAT DINERS ENGAGED CUSTOMERS

ENGAGED CUSTOMERS

BOOST PROFITS

BUSINESS

STRATEGY

NEW DINERS

REWARDS

FREQUENCY

VALUE

DIGITAL MARKETING

DIGITAL MARKETING

CUSTOMER SURVEYS

INCREASE SALES

BUSINESS DECISIONS

DATA-DRIVEN

Rewards Network offers easy loyalty programs for both the diner and the restaurant. Restaurants are provided access to 3.4 million passionate diners in several well-established and successful dining reward programs, including the nation’s leading airline, loyalty, charitable and hotel dining programs. The programs offer diners the rewards of their choice, even when several diners with different reward choices are eating together. In addition, diners are given incentives beyond their rewards to try new restaurants and return repeatedly. Diners sign up for the program using their preferred credit or debit card, allowing restaurant transaction information to be tracked both by the restaurant and by the diner through Rewards Network’s proprietary, patented credit/debit card processing system. Diners don’t have to carry or show a loyalty card; they simply pay with their registered credit card to earn their rewards. Rewards Network makes it easy.

Rewards Network’s dining loyalty program members have a high disposable income (35 percent of members reported incomes of over $100,000 annually in Q1 2012) and are from a wide range in age and family structure. This diverse and wealthy member base provides a range of frequent diners for all types of restaurants. And because the Rewards Network programs reward members for their spending rather than offering discounts or coupons, the restaurant brand value remains intact. In addition, Rewards Network members pay an average of 23 percent more than non-members at program restaurants (based on 2011 data).

The Rewards Network program includes comprehensive and targeted digital marketing to keep program restaurants top of mind with frequent diners, as well as the Comment Management System so restaurants can track customer experiences and communicate directly with the frequent diners who provide this valuable feedback. Participating restaurants receive detailed weekly statements, monthly summaries and quarterly reports. These comprehensive performance reports provide actionable data, including where members are coming from, whether they are new or repeat members and a synopsis of their survey comments.