As restaurants navigate through an uneasy climate in 2020, developing a strategy to improve the customer experience and maximize long-term profitability is paramount. Restaurants need new customers, more visits, and larger checks, and they need it all to come with a positive ROI. In the COVID and post-COVID environments, it may sound like an impossible feat.
How does treating diners differently maximize profit?
It’s becoming increasingly clear that personalization is the key ingredient restaurants need in order to survive—and then thrive in a post-COVID world. Research shows that personalization influences consumer behavior, improves the consumer experience, and optimizes marketing ROI and profit.
Adweek found that personalization reduces customer acquisition costs by up to 50 percent, and increases marketing spend efficiency by up to 30 percent. And without personalization, brick-and-mortar restaurants run the risk of taking steps that cannibalize their own profit, and they miss the opportunity to improve their customers’ dining experiences.
Put another way, we agree, in theory, that each diner is unique and so are the things that motivate them to choose your restaurant. So why, in practice, do brick-and-mortar restaurants treat every diner in the same way?
Imagine there are three different kinds of customers: (1) the “loyal customer,” (2) the “never customer,” and (3) the “sometimes customer.” Before COVID-19 they were coming into your location, and now they are ordering takeout or delivery.
The loyal customer chooses your restaurant almost every time they order in or dine out (outside of COVID-19). To keep the loyal customer happy, you provide them great service and even offer access to a general loyalty program—the same things you do for every other customer, loyal or not. Unfortunately, most of these loyalty programs cannibalize your profit by offering promotions on menu items that the loyal customer was going to buy anyway.
The never customer, for whatever reason, does not and will not buy from your restaurant. Whether it is because of location, brand bias, or something unrelated, the never customer chooses neighboring restaurants over yours. As a result, you do not do anything for this customer and you are unable to reach out and incentivize future orders or visits.
The sometimes customer is the trickiest of the three. They sporadically buy from your restaurant, but they could be buying more. We know this because they order in / eat out often, but at different restaurants on your block. You do not know what makes the sometimes customer visit or order from your restaurant some days and not others, so you continue to provide good service and access to a loyalty program with the hope of encouraging these customers to buy more often. In other words, you treat the sometimes customer the same way you treat the loyal and the never customers, which is the best you can do with the systems and processes you have today.
Is this an efficient and effective way to do business? Brick-and-mortar restaurants like yours are giving unnecessary discounts to loyal customers, are failing to reach the never customers, and do not understand what would actually motivate the sometimes customer to order more, visit more, or increase their check sizes.
It would be great if each of these three customers would hold up a sign that identified themselves as “loyal,” “never,” and “sometimes” customers restaurants could treat them accordingly. It would be even better if they held up signs that said how much each was spending, how often, and what would motivate them to spend more.
For the sake of argument, imagine that each customer did hold signs identifying themselves. How would you adjust the way you treat each customer?
For customers holding the “loyal” sign, you would stop unnecessarily discounting menu items, since those customers would buy them from you anyway. Instead, you would thank them for their business and do something for them that is above-and-beyond the norm at your restaurant. You would also encourage the customer to buy more or different menu items than they usually would to profitability increase their check size and give them move value for their given dollar.
For customers holding the “never” sign, you would want to understand why the customer does not visit or order from your restaurant, and investigate whether there was something you could do to persuade the customer to change their behavior in a way that would also be gross margin positive.
For customers holding the “sometimes” sign, you would want to understand (1) what the customer is ordering from your restaurant today, and (2) why the customer doesn’t visit your restaurant more often. Answering the first would allow you to positively shape the customer's experience when they do visit or order from your restaurant, and answering the second would help you profitably persuade the customer to order more, more often.
The Real-World Fix
Adding a digital layer to brick-and-mortar commerce takes the place of this helpful, but unrealistic, sign-holding. The thought experiment describes—in a simplified way—how machine learning can differentiate between millions of users at the same time without having them hold up signs. Each consumer is unique, and each consumer is motivated by different things. Understanding each consumer’s motivations, and having the ability to act on this understanding, gives restaurants a way to treat each customer how they would like to be treated and improve their business’s profitability. Restaurants should be able to interact with each diner one-on-one in an efficient, enjoyable way for both the business and the customer.
Unfortunately, in an effort to attract new diners, restaurants who are not personalizing interactions with their customers often cannibalize their own business. That means they are unnecessarily discounting or promoting a menu item or service that a consumer was going to purchase anyway. Restaurants must move away from the discount products and apps that use this model. It’s not sustainable to group customers based on total spend and offer blanket discounts. Instead, restaurants need to use platforms that ensure each transaction is measurably beneficial to both the customer and the merchant.
Truly effective platforms are able to personalize wherever possible to the benefit of all involved. It is possible to analyze the data restaurants already have to better understand what each individual diner needs and how to meet those needs in a profitable way. It gives diners the metaphorical “sign” every restaurant owner wishes customers carried, informing what to personalize, who to personalize with, and how to increase profits.
That is why it pays to treat each diner differently.