Podcast Summary: Restaurant Strategy – "Do You Need a Loyalty Program for Your Restaurant?"

Episode Overview

In the March 13, 2025 episode of the Restaurant Strategy podcast, host Chip Klose delves into the critical question facing many independent restaurant owners: Do you need a loyalty program for your restaurant? Throughout the episode, Chip explores the efficacy of loyalty programs, shares insights from industry leaders, and offers actionable strategies to help restaurant owners increase profitability through effective loyalty initiatives.

Introduction to Loyalty Programs

Chip opens the discussion by posing the central question of the episode: "Do you need a loyalty program for your restaurant?" He emphasizes that the episode aims to provide more than a simple yes or no answer. Instead, listeners will gain a comprehensive understanding of what loyalty programs entail, how they can be effectively implemented, and the metrics needed to evaluate their success.

“Do you need a loyalty program for your restaurant? Maybe. Let’s talk about what kind of loyalty program for your restaurant.” – [00:00]

The Fundamental Importance of Measuring Loyalty Programs

Chip underscores the necessity of measuring the effectiveness of any loyalty program. He expresses frustration when restaurant owners implement loyalty programs without tracking their performance, rendering them uncertain about their return on investment.

“The fact that you would do something and not know whether it works is a problem.” – [05:30]

He advocates for a data-driven approach, asserting that if you invest time and resources into a loyalty program, you must also commit to measuring its outcomes to ensure it delivers value.

Does Loyalty Work?

Chip confidently asserts that loyalty programs do indeed work, citing successful implementations by major companies such as airline companies, hotel chains, Starbucks, and Chipotle. He reasons that these industry giants invest heavily in loyalty because they have proven its effectiveness through substantial data.

“The airlines, the hotel chains, the biggest organizations like Starbucks and Chipotle—all have loyalty programs because they know it works.” – [08:15]

However, he notes that traditional loyalty programs often primarily benefit heavy users, helping them become even more loyal without necessarily engaging casual patrons.

Critique of Standard Loyalty Programs

Chip critiques the one-size-fits-all approach commonly found in many loyalty programs, particularly those offered by POS systems like Toast. He argues that while these programs can effectively gather customer data, they often fail to foster genuine loyalty because they lack unique, tangible benefits that differentiate one restaurant from another.

“Every restaurant who's on Toast uses the Toast loyalty program. So for a consumer, it's indistinguishable. They sign up for all the loyalty programs, but it's not necessarily making them more loyal.” – [12:45]

Personal Anecdotes: The United vs. DSW Analogy

To illustrate his point, Chip shares personal experiences contrasting a meaningful loyalty program with a generic reward system. He compares his loyalty to United Airlines versus DSW (a shoe retailer), highlighting that tangible benefits from United incentivize him to remain loyal, whereas the minimal rewards from DSW do not significantly influence his shopping behavior.

“People don’t need just to keep spending money with you and then get $10 back every so often. My example of DSW doesn’t make me go there more, but the tangible benefits from United make me loyal.” – [13:50]

Case Study: Ribbon Shop’s Royalty Program

Chip introduces Ribbon Shop’s Royalty program as an exemplary model that transcends traditional loyalty programs. Unlike standard programs that offer generic rewards, Ribbon Shop provides exclusive, tangible benefits that foster genuine loyalty and generate consistent revenue.

Key Features of Ribbon Shop’s Royalty Program:

• Exclusive Membership: Limited to 250 members per location, ensuring exclusivity and value.
• Monthly Gift Cards: Members pay $50 monthly, which is preloaded onto a gift card. This not only encourages regular spending but also generates predictable revenue.
• Tangible Benefits: Includes high-value perks such as a premium knife set, free entrees on birthdays, and prioritized seating. These benefits are designed to enhance the customer experience beyond mere discounts.

“They created a royalty program where every location has 250 royalty members. It’s a gift card program where $50 is preloaded every month, encouraging members to spend and generating over $12,000 in recurring revenue.” – [20:10]

Chip praises this approach for its ability to convert heavy users into even more loyal patrons. By offering substantial, meaningful rewards, Ribbon Shop ensures that members feel valued and are incentivized to visit more frequently.

Actionable Strategies for Effective Loyalty Programs

Drawing from the Ribbon Shop example, Chip provides restaurant owners with practical advice on designing loyalty programs that truly drive loyalty and profitability:

1. Offer Tangible Benefits: Move beyond simple discounts. Provide exclusive perks that enhance the dining experience, such as priority reservations or special event access.
2. Limit Membership: Creating a sense of exclusivity can increase the perceived value of the program and foster stronger loyalty among members.
3. Encourage Regular Spend: Implementing preloaded gift cards ensures that members have a vested interest in returning to use their pre-funded credit.
4. Automate Reminders and Rewards: Use automated communications to remind members of their rewards and encourage them to redeem their benefits, thereby driving repeat visits.

“Do not be lazy, don’t take the easy way out. You need to build a program that actually gives people something that will make them loyal.” – [25:45]

Maximizing Data Utilization

While Chip acknowledges the value of data acquisition through loyalty programs, he emphasizes that data should be leveraged to engage customers meaningfully. By using the insights gathered, restaurants can tailor their marketing efforts to better meet customer needs and preferences, thereby enhancing the effectiveness of their loyalty initiatives.

“Customer acquisition without data acquisition is a waste because if we have no way to reach back out to somebody to remind them, to remarket to them, then we’re missing something pretty powerful.” – [16:45]

Final Thoughts and Encouragement

Chip concludes the episode by encouraging restaurant owners to think creatively and strategically about their loyalty programs. He stresses the importance of moving beyond generic reward systems to develop programs that offer real value to customers and drive sustained profitability for the business.

“You are creative, you are smart. You are capable of creating something great for your restaurant and great for your guests.” – [30:20]

He reiterates that effective loyalty programs are not just about discounts but about building meaningful relationships with customers through exclusive and valuable benefits.

Conclusion

In this insightful episode, Chip Klose provides a nuanced exploration of loyalty programs, advocating for strategies that go beyond superficial rewards to create genuine customer loyalty and drive restaurant profitability. By leveraging examples like Ribbon Shop’s Royalty program and emphasizing the importance of tangible benefits and data-driven approaches, Chip equips restaurant owners with the knowledge and inspiration needed to implement successful loyalty initiatives.

For restaurant owners looking to enhance their loyalty programs, this episode serves as a compelling guide to developing strategies that foster true customer loyalty and deliver consistent, predictable returns.

Notable Quotes:

• “Do you need a loyalty program for your restaurant? Maybe. Let’s talk about what kind of loyalty program for your restaurant.” – Chip Klose [00:00]
• “The fact that you would do something and not know whether it works is a problem.” – Chip Klose [05:30]
• “The airlines, the hotel chains, the biggest organizations like Starbucks and Chipotle—all have loyalty programs because they know it works.” – Chip Klose [08:15]
• “Every restaurant who's on Toast uses the Toast loyalty program. So for a consumer, it's indistinguishable.” – Chip Klose [12:45]
• “People don’t need just to keep spending money with you and then get $10 back every so often. My example of DSW doesn’t make me go there more, but the tangible benefits from United make me loyal.” – Chip Klose [13:50]
• “They created a royalty program where every location has 250 royalty members. It’s a gift card program where $50 is preloaded every month, encouraging members to spend and generating over $12,000 in recurring revenue.” – Chip Klose [20:10]
• “Do not be lazy, don’t take the easy way out. You need to build a program that actually gives people something that will make them loyal.” – Chip Klose [25:45]
• “Customer acquisition without data acquisition is a waste because if we have no way to reach back out to somebody to remind them, to remarket to them, then we’re missing something pretty powerful.” – Chip Klose [16:45]
• “You are creative, you are smart. You are capable of creating something great for your restaurant and great for your guests.” – Chip Klose [30:20]

Resources Mentioned:

• Ribbon Shop’s Royalty Program: An advanced loyalty initiative offering exclusive benefits and preloaded gift cards to foster genuine customer loyalty.
• P3 Mastermind Program: A group coaching program led by Chip Klose designed to help restaurant owners implement effective strategies for increasing profitability.

Call to Action: Restaurant owners seeking to implement or refine their loyalty programs are encouraged to think creatively, leverage data effectively, and prioritize tangible benefits to build meaningful customer relationships that drive repeat business and sustained profitability.