This post is part of the Reporter's Notebook blog.
So you think you should launch a loyalty program.
It seems all the big chains have them across all segments. And they’re a lot more sophisticated than punching a card for a free drink after so many visits.
Starbucks is creating a growing digital ecosystem in which its 10.4 million MyStarbucksRewards members can earn Stars by streaming music, buying The New York Times or using the Lyft ride-sharing service. Dunkin’ Donuts is talking about sophisticated micro-segmented marketing techniques with its more than 3 million DDPerks loyalty club members. California Pizza Kitchen says its 1 million-plus loyalty club members tend to spend more and come in more often.
P.F. Chang’s China Bistro recently introduced a fully digital loyalty program. Domino’s Pizza is testing one, and Taco Bell is working on it.
Before you jump on that bandwagon, however, consider industry iconoclast Chipotle Mexican Grill’s perspective.
Wall Street analysts asked company officials this week whether a loyalty program was in the burrito chain’s future.
Mark Crumpacker, Chipotle’s chief creative and development officer, said it was a tricky question to answer.
After studying it, he said, “We don’t believe the general supposition that loyalty will make less-frequent customers more frequent.”
In the past, he said, the thinking was that “if you can take an infrequent or lapsed customer and make them come to your restaurant just one more time, you would pay for the program.”
Chipotle’s research, however, found that “there are virtually no loyalty programs that actually achieve that,” he said. “What they do is reward your most loyal customers.”
Still, Crumpacker said, it’s undeniable that loyalty programs offer a tremendous opportunity for data collection. Chipotle doesn’t want to miss out on that.
So the company is looking at mobile payment as a data collection opportunity. ApplePay is in the works as one option, but it there will likely be others.
“We will provide our customers, at some point, various options through which they can pay for their food and we will capture data from them, whether that’s through a third party or through the ability to use our own gift cards,” said Crumpacker.
The data may not be as comprehensive as what can be gathered with a loyalty program, he added, “but it’s enough, the way we envision it, that it will do the trick,” said Crumpacker.
The problem is that Chipotle’s customers are already so darn loyal, added Jack Hartung, Chipotle’s chief financial officer.
It’s a good problem to have. But implementing a formal loyalty program would simply not be worth the cost, he said.
“What we’ve found is we’ve been able to build loyalty through more organic methods by encouraging people to learn more about Chipotle, by piquing their interest about how food is raised, by having them come into Chipotle and be treated to an extraordinary dining experience,” Hartung said.
Chipotle, for example, has invested in its series of Cultivate festivals, as well as online gaming initiatives like the “Friend or Faux” site launched this week that allows guests to earn a buy-one-get-one mobile offer while they learn about the chain’s better ingredients.
The Denver-based chain has positioned itself as a change agent that will slowly chip away at the processed food culture of Big Agriculture and forge a path toward better fast food – a concept where guests can be free from the guilt of purchasing genetically modified ingredients or eating unnecessary additives that don’t improve taste.
That doesn’t mean Chipotle doesn’t worry about finding ways to get new guests through the door.
Hartung said the company estimates that 35 percent to 40 percent of people have never been to Chipotle. Among existing customers, about 55 percent only come a couple times per year.
The opportunity is to convince those existing guests to come three or four times a year, Hartung said.
How will Chipotle do that?
“The vast majority of our attention goes to doing what we do, but doing it better than ever,” he said.