The Magic of Credit Card-Linked Restaurant Loyalty Rewards Programs

How many times has this happened to you? You’re at your local coffee shop, bakery, or cafe, and the cashier pulls out a frequent buyer punch card. She uses a hole punch to mark your purchase and hands it over. “Nine more purchases and then you get a free one,” she remarks.

You smile, tuck the card into the back of your wallet, and completely forget about it on your next visit.

Sound familiar? It’s a common scenario. Many operators are still clinging to woefully outdated customer loyalty and reward program models. The old card-punch routine made sense in the days of Central Perk but there are better ways to delight guests in 2022 thanks to updated restaurant loyalty programs.

Why restaurant loyalty matters

Loyalty programs and rewards-based incentives aren’t just for retailers anymore. But before we dig into how credit card-linked loyalty programs work, it’s worth taking a step back to consider what a loyalty program is and what it can do for your business. 

First, it’s important to know the cost of customer acquisition, also known as CAC, for your business. You can calculate this by taking your entire cost of sales and marketing over a given period, including salaries and other overhead expenses, and dividing it by the number of customers you acquired in that period. 

Generally, the cost to acquire a new customer for your business can cost five times more than retaining an existing customer. This is where a program that helps you reward customers with loyalty points really comes in handy.

How does a customer loyalty program work?

A loyalty rewards program works by offering customers a certain level of points for each purchase or visit. Over time, these points accumulate and the guest is rewarded with some sort of offer, whether it’s a discount on a new product or meal item, entries into giveaways, or a coupon for an upcoming order. 

If your customer loyalty program offers appealing incentives with a simple path to participation, it can: 

• Drive higher checks
• Increase customer retention by turning new customers into regulars  
• Incentivize your best customers to drive referrals to your restaurant

Let’s break these three down a bit further.

Motivate guests to spend more

Customers enrolled in loyalty programs tend to have higher check averages.

A study published by the Massachusetts Institute of Technology (MIT) references two different effects that play into increased guest-spend: the “loyalty effect” and the “rewarded behavior effect.” The loyalty effect is when customers purchase more in an effort to earn a reward. For example, if a guest notices that they are $10 away from a reward at your coffee shop but their current online order total is only $8, they’re more likely to take advantage of an upsell opportunity that will get them to the necessary reward amount. Similarly, rewarded behavior effect shows that guests purchase more after receiving an award. 

Lee Barnes, the head of data insights at customer engagement platform Paytronix, told QSR Magazine, “We’ve done a ton of analysis and found people who join loyalty programs visit restaurants 20 percent more often and spend 20 percent more than they would if they hadn't joined.”

One thing is for certain: whether your guests are working toward free products, a discount on their next purchase, or other special offers, having a goal to work toward will motivate them to spend more at your restaurant.

Turn low-frequency guests into high-frequency guests

In addition to spending more per visit, an attractive loyalty program can increase the frequency of visits — that's the power of a great restaurant marketing strategy. Plus, every restaurant regular started with their first visit!

According to the 2022 Loyalty Barometer Report from Merkle, “79% of consumers are more likely to do business with a brand because of its loyalty program.” And, further demonstrating the ever-growing popularity of loyalty rewards programs, “91% of consumers have earned or redeemed a reward in the past six months.” 

Targeting low-frequency guests with your loyalty program is a smart strategy, as these guests offer the greatest revenue-generating potential. Plus, a rewards program provides a perfect opportunity to build customer loyalty with your less frequent guests. 

Transform customers into raving fans

Peer recommendations and social validation are always powerful in the age of social media. Shareable and brag-worthy reward experiences are more likely to get your customers talking and posting about your restaurant online. 

But it’s not just the young, social generation who loves a loyalty program. According to the National Restaurant Association’s State of the Restaurant Industry report, 39% of baby boomers (age 56-74) say the availability of a customer loyalty and reward program would make them more likely to choose one restaurant over another, while 35% of gen z (age 18-23) said the same. In short: everyone loves a reward and implementing a loyalty program for your restaurant can help keep guests of all ages coming back and singing your praises.

How does a credit card-linked loyalty rewards program work?

Credit card-linked loyalty is just what it sounds like: it's a loyalty program that tracks rewards and points based on a customer’s credit card use. Guests are asked to opt-in to the loyalty program once. From there on out, their point and reward accumulation is automated.

The old punch-card method we described above puts the onus to earn rewards on guests and is laden with pitfalls, such as potential cheating and the cost of printed materials. 

With a punch card, each time a customer visits an establishment they need to both have their card on them and remember to present it. If their card goes through the wash or they misplace it before they’ve redeemed their reward, they rewind back to zero.

With credit card-linked loyalty, guests opt-in only once. Then, each time they visit your restaurant and pay with their card, they automatically earn rewards points. 

Here’s how a customer experience would play out with Toast's restaurant loyalty program:

1. Sally visits Fenway Cafe for the first time and pays with her card.
2. When she pays and signs for her meal, Sally has the option to opt into Fenway Cafe’s loyalty program by providing her email address.
3. Sally receives an email with her unique rewards number and QR code.
4. Sally visits Fenway Cafe again the next day and automatically earns points towards her reward.
5. If Sally wants to pay with cash on another visit, she can use her unique rewards number, QR code, phone number, or email to still earn points.

This automation makes earning rewards a seamless part of each interaction for both customers and restaurant staff. Neither party needs to remember to initiate the loyalty transaction - it just happens. Plus, Toast Loyalty is integrated with your point of sale, or POS, making it easy for you to collect data. It’s a win-win.

How can credit card-linked rewards programs help you achieve your goals?

It’s clear a robust loyalty rewards program has the potential to pay big dividends. Next, we’re going to dive into why card-linked loyalty can specifically help you achieve the results described above.

Whether your goal is to increase customer lifetime value, increase customer retention, grow your customer base, build customer loyalty, or compete with the likes of Starbucks and other big chains, a loyalty program for your restaurant will help provide the customer reach and data to help hit your target.

Hungry for customer data

Speaking of data, credit card-linked loyalty programs provide businesses with valuable customer insights to take their business to the next level. Data for your customer base is aggregated on your POS to paint a bigger picture of guest buying habits, trends, and which rewards drive the most spending.

Stuart Ward, owner of Moonie’s Burger House in Cedar Park, Texas shares, “My colleagues who have struggled with adoption of loyalty programs in the past are really impressed with Toast’s loyalty module. I can easily pull up our most loyal customers and see that they have spent $1,200 at our restaurant this year and have redeemed all those rewards! 

Having a loyalty program integrated into the POS system really improves adoption. We have 3,000 rewards accounts who love it. We even have a customer who has redeemed twelve free burgers."

Research suggests that millennials are using cards more frequently than older generations, even for small ($5 and under) purchases. This trend coupled with the boom in tech-enabled checkout experiences makes it a ripe time to consider upgrading to a credit card-linked loyalty program. You’ll delight customers by making it effortless to earn rewards and capture valuable insights along the way.

What is an example of a credit card-linked restaurant loyalty rewards program?

With a fully integrated loyalty program, such as Toast Loyalty, your restaurant can reward customers and keep them coming back for more. Due to the ongoing labor shortage, many restaurant owners are looking for new, unique ways to keep guests coming back, especially in ways that include self-service. By adding Toast Loyalty, you can enable customers to place orders online, earn rewards points, and increase customer retention. Not to mention the impact you can make when it comes to brand loyalty.

The best part? Toast Loyalty is just one flat fee per month, which means no surprise loyalty program fees. Tap into the power of your existing customers while attracting new ones with a loyalty points program that works. 

On average, restaurants see additional sales and more repeat visits from guests in a loyalty rewards program. We took real sales data from Toast restaurants and created a simple ROI calculator. Use it to figure out your sales boost. If you don't know these numbers exactly, just use an estimate for how many times on average guests visit your restaurant each year and how many new loyalty members you think you could sign up each month.

Are you ready to start driving repeat business and increasing your customer retention rate with a loyalty rewards program? Learn more about Toast Loyalty and request a demo to get started.

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