Attracting New Customers vs. Nurturing Loyalty
Once your restaurant is up and running – after the first marketing push, through the launch, and on into steady business – the focus of your advertising should constantly be changing. Whereas once every customer was a new customer, now you are welcoming regulars: repeat customers for whom your restaurant is a home away from home. The question is, at this enviable point, do you continue to invest in trying to attract new customers, or do you focus on maintaining your loyal diners. Or both.
New Customers First
According to LoyalMarketing.com, in an article entitled, “Customer Acquisition vs Customer Retention,” it costs six to seven times more to acquire a new customer than it does to retain an existing one, yet customer acquisition is still the primary focus of most businesses in general, and restaurants in particular. Loyal customers, and their repeat business, are the cornerstone+ of long-term success because it is so expensive to find new customers. Nonetheless, if expansion and growth are a goal – and of course they are – new business must be a top priority. To continue to grow your business you’re going to need more people frequenting your restaurant – and lots of them. Although you want to maintain a relationship with your existing customers, it will always be important to bring in fresh business in the form of new customers.
The Problem with Loyalty Programs
Loyalty programs for veteran customers are great, but you can never stop trying to expand your business through new customers. A loyalty program offered to an existing faithful customer won’t make him or her more loyal; at the most it may get happy customers to visit once or twice more a year. Maybe. People’s dining-out habits are usually pretty steady and very little can entice them to go beyond their allotted budget and eat out more. On the other hand, a new customer has untapped potential – you may strike gold with the new customer who dines out on a weekly basis, and your restaurant can turn into his or her favorite haunt.
When Loyalty Programs Do Work
A higher end restaurant that charges higher prices and that is deemed a special-occasion venue can expect even the most loyal customers to visit only two or three times a year, at the most. In a case like this, a loyalty program won’t make much of a dent in your monthly traffic. On the other hand, a high-traffic restaurant, such as a diner or coffee shop, with customers who make frequent, even daily visits is a much better target for loyalty programs, which shift the focus from new customers to maintaining regular customers. This comes down to pure math – a function of frequency and percentages. It is simplified on a MineThatData articled, entitled, “Why Loyalty Programs Work, and Why They Don’t.”
The Benefits of Offering Discounts for New Customers
Offering new customers a discount increases the chances that someone new will try your restaurant for the first time. All things being equal – and assuming that your restaurant is as awesome as you think it is – the more people who give your restaurant a try, the more repeat customers you will have. Giving new customers a discount makes it easy for you to track the effectiveness of your various marketing campaigns. Furthermore, if you provide different coupon codes for your marketing promotions, you can measure how many new customers you received from each coupon. If you are efficient and diligent, you can even track the lifetime value of these customers and learn which marketing approach brings you the best customers.
In addition, offering a coupon can be a good way to get new customers to sign-up for your email list, which gives you more opportunities to communicate to them in the future.
The Disadvantage of Discounts to New Customers
Offering a discount means that you lower your profit margins – there’s no other way to discount your food. On the other hand, the bigger your discount the more likely you are of attracting new customers. Some restaurants will offer such a large discount at the time of their launch, that they end up losing money at the beginning, in the hope that new customers will return and continue buying. A while ago, The New York Times featured an article showing how to calculate the math to determine whether it’s worthwhile to offer a Groupon deal to attract new customers. The bottom line: the jury is still out.
Another disadvantage of offering a steep discount to new customers is that they will inevitably have a tough time paying full price in the future – that’s just human nature. There’s also the concern that offering large discounts makes you and your restaurant look desperate, or like you’re trying “last-ditch” efforts to attract clientele. Discounts may also give customers the feeling that your restaurant is not of the high quality you believe it is – or that you want your diners to believe it is. This is because discounts attract bargain hunters for whom price is the bottom line, rather than service or quality. This type of customer is both more demanding and less loyal and will drain your attention and your bank account.
The Upside of Offering Discounts to Loyal Customers
As mentioned, it’s less expensive to sell to loyal customers than to find new ones. Through repeat business, loyal customers spend at least 50% more than new ones, which allows you to give repeat customers discounts and still stay profitable. This also has the psychological effect of making loyal patrons feel appreciated. A loyalty program, for instance, that offers a free meal for every X number of meals, is a great way to get loyal customers to try new menu items – on the house.
The Downside of Offering Discounts to Loyal Customers
This is where it really gets tricky – if loyal customers appreciate and value your service and food at the full price, why devalue those commodities by offering it at a discount? Also, offering discounts or a loyalty program takes time and resources, which are better spent on attracting new business. While you want to show your regular customers that you appreciate their business, it’s a shame to spend money on a sure thing when the great unknown – in the form of new customers – is a more worthwhile investment.
New vs. Old: The Bottom Line
To build up a thriving restaurant business, you have no choice but to pay attention to both customer acquisition and to retention, with an edge on retaining your loyal customers who are with you for the long term. To do this, you must train your staff to lay the foundation for ongoing relationships with customers. Loyal customers can be your greatest advocates, especially if you combine their devotion with effective social media campaigns. While attracting new business is important to your bottom line, holding on to loyal customers should be your top priority.