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Abstract
Many restaurants and other businesses use expensive customer acquisition techniques to
increase their profits. These strategies are often wasteful and can even lead to decreases in
profits, as costs exceed benefits. A focus on retaining customers is a far more efficient approach
to bolster profits. Restaurants and other businesses can keep their customers through the use of
loyalty programs and excellent customer service. This paper serves to understand and evaluate
the importance of customer retention, along with its relationship with acquisition, specifically in
restaurants. By reducing the money spent on attracting new customers and spending more money
Introduction
Restaurants have used content advertising and vigorous customer acquisition techniques
to increase profits for many years. Millions of dollars are spent annually by restaurants in an
attempt to bring in more customers. Often times, however, these techniques are incredibly
wasteful and result in no significant increase in profits. Customer retention, the act of focusing
on customer loyalty and customer service to maintain customers, is a far more efficient
alternative. This paper serves to explain the overall importance of customer retention as a
Literature Review
One of the most significant issues in common marketing techniques used by restaurants is
the immense waste of customer acquisition. Many companies often spend an excessive amount
of money on trying to attract new customers without actually evaluating if their techniques are
working. This results in millions of wasted dollars, as companies continue to try a variety of
methods to attract new customers (Gordon). They try ineffective avenues to reach new potential
customers and waste huge sums of money in the process. In an article published in The
Economist, the author explains how even one of the largest online retailers in the world wastes
money: “Take Amazon. ‘Their philosophy is not good,’ says one loyalty consultant (who asked
not to be identified). ‘The amount they spend on promotions is insane.’ Rather than offering
across-the-board discounts, he says, Amazon would be much better served by designing and
targeting customised promotions for particular shoppers as part of a loyalty scheme” (“Forsake
all others; Loyalty schemes”). Blatant acquisition techniques can be largely ineffective as they
Another common concern with acquisition techniques is how the costs can often exceed
the benefits. When a business gains a new customer, this customer may only make one purchase
before never returning again. If acquisition costs more than the return, it is clear how this
common strategy is ineffective. In order to continue with spending to bring in new customers,
companies should reevaluate if their rewards exceed the costs, especially in the digital age. In
fact, data shows that physical retailers sometimes overspend on their marketing budgets,
resulting in an overall loss. On average, brick and mortar stores spend about 31 dollars on
advertising per customer. If the customer spends less than 31 dollars, either in one visit or in an
extended period of time, the company’s marketing attempts are futile (Hamblen). Often times,
companies are unaware of the actual benefits of their marketing and continue to spend money
After a certain amount of people come to a company, continued advertisements often do more
harm than good. Businesses lose touch with their actual customers and instead spend millions of
dollars on attracting the attention of potential customers. But after an extensive period of
acquisition, there are far fewer customers willing to try the business. Essentially, these
companies attract all potential customers yet continue to market, wasting millions of dollars.
One of the main strategies used by restaurants to retain their customers are loyalty
programs. These programs, generally digital, provide frequent discounts and special
opportunities to recurring customers. These strategies help to develop brand loyalty which keep
customers coming back. In fact, “nearly 75% of consumers surveyed say they are willing to
provide more personal information in exchange for relevant offers and communications”
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(Androich). Loyalty programs offer customers the opportunity to find out relevant information
about the establishment, along with limited time discounts which help to further solidify brand
loyalty.
More than just providing recurring customers with discounts, these programs help to
cement a relationship between a customer and an establishment. This connection encourages the
customer to continue to come back and spend money at the establishment. In fact, research has
found that in times of financial crisis, these customer relationships can save entire businesses.
“Building enduring, profitable, growing brands is all about creating, nurturing, defending and
strengthening loyal brand bonds” (Light). Sustained profits are possible, even when issues arise,
through the development of brand loyalty. During the economic recession in the late 2000s,
many restaurants and other businesses suffered greatly. However, companies that had created
loyalty with their customers continued to do well despite the economic standstill. The
relationships developed prior to the recession were essential in keeping the businesses afloat, as
patrons continued to visit the establishment despite hard times (Birch). Generating loyalty
Research has also shown immense profit increases due to loyalty programs. In various
different industries, these programs can account for millions of dollars. In an article published in
The Economist, the author reveals that “For airlines, profit margins on frequent-flyer
programmes can be 30-40%, says Pranay Jhunjhunwala of the Boston Consulting Group (BCG),
a consultancy, compared with 10% on flights in general” (“Forsake all others; Loyalty
schemes”). The profits generated because of these loyalty programs increase by two to three
times. Even though this example looks specifically at findings in airlines, there are similar data
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in other industries. In fact, research on grocery stores has also found a correlation between
customers and loyalty programs. “Some 97% of purchases at Kroger, an American grocery firm,
are reported to be made by loyalty-card holders, who receive individual offers based on their
shopping habits” (“Forsake all others; Loyalty schemes”). Once again, an immense portion of the
store’s customer base use loyalty programs and receive specific offers that entice them to return
frequently. These loyalty programs lead to recurring customers and increased profits.
Customer service is also an integral part of maintaining customers. In fact, some critics
argue that most corporations lack proper customer service, resulting in few frequent customers.
“A significant proportion [of surveyed businesses] are failing to fulfill some of the basic tenets of
doing business and marketing - identifying what customers actually want and fulfilling those
needs” (Edwards). By failing to understand the needs of their customers and failing to address
these needs, corporations are wasting their resources on irrelevant things. Good service is
important in almost every industry. “In any competitive market, the winner (or survivor) will be
the organization that best succeeds at endearing itself to its customers and creating brand loyalty”
(Middleton). An increased focus on customer service to keep clients happy is essential to any
healthy business.
Customer service becomes even more important in the restaurant industry. Customers
require a high level of patience and kindness from restaurant employees and managers. There are
certain restaurants that are specifically devoted to providing excellent customer service. They
continue to echo their mantra about the importance of a customer’s needs. One such restaurant is
the Beefeater chain in the UK. This chain not only focuses on providing great food, but also
excellent customer service which simply is not available at other places (Walkley). Some
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proponents of the importance of customer service actually argue that proper service is more
important than the actual quality of food. “Business guru Tom Peters tells us that 70% of
customers 'hit the road' not because of price or product quality issues, but because they didn't like
the human side of doing business with the provider of the product or service” (Walkley). Clearly,
constantly praised for its unprecedented customer service is Chick Fil A. This American chain
prides itself on its service to customers. Stories about the fantastic nature of employees are
everywhere on the Internet, and the restaurant has been named one of the greatest corporations of
all time in terms of customer service. This unique connection between the restaurant and
customers creates brand loyalty unprecedented by other businesses, resulting in Chick Fil A’s
incredible success (Pignataro). Excellent customer service sets one restaurant apart from the
The development of loyalty with customers also has a ripple effect. If restaurants and
other businesses provide great customer service and use loyalty programs, customers are more
likely to refer their friends and family. Although referrals may not seem relevant, they can often
bring new customers to an establishment. Specifically in the finance industry, like banks,
referrals have a 20-40% rate of bringing in new customers (Reichheld). Good customer service
and brand loyalty encourages existing customers to refer their friends, which can greatly bolster
Personalized approaches of contacting customers can also have a significant effect on the
amount of customers who return. Strategies that focus on specific groups of people instead of the
entire population can be greatly effective in bringing in new customers. This personalization
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creates an incredibly important connection with customers. “The biggest message when I read
the survey results was there is no silver bullet but that personalization is key” (“Marketing
Matters”). By personalizing marketing distributions, corporations are able to further solidify their
Analysis
The most effective data collection design was to use a mix of two methods. By using a
mix of qualitative and quantitative data, reasoning behind employing loyalty programs became
more clear, along with how customers felt about these same programs. This mixed-method
design describes the rationale for developing a link of loyalty with customers, and the
questionnaire finds correlations between loyalty programs, customer service, and purchases at a
restaurant. A questionnaire was utilized, along with interviews of store managers. A Google
Form was sent about customer loyalty and customer service to dozens of students, and an
interview was conducted with a manager of Jersey Mike’s, Kyle Yancey. This unique design
allowed me to both see the rationale of managers who utilize customer loyalty programs, along
Mr. Kyle - Kyle Yancey oversees various Jersey Mike’s in the MD-DC-VA
Yancey, March area
7 2019 - Thousands of customers use the loyalty app
- People with the loyalty program seem to come to the restaurant
more often
- “Flash deals” that are sent out often attract customers
- Track fluctuations in customers by comparing to previous
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Question Responses
Have you ever downloaded the app or signed 20/42 (47.6%) have
up for the loyalty program of a restaurant? 22/42 (52.4%) have not
The only interview revealed that, all in all, loyalty programs have very significant
benefits. Yancey explained that since the Jersey Mike’s app was produced, sales have increased.
There are thousands of customers who use the loyalty app. The most interesting result of the data
collection is that customers feel the same way as managers. Of the people who have loyalty
programs, almost one third of them feel compelled to go to a restaurant. This is extremely
important since it shows that an increased focus on loyalty apps is an effective way for
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restaurants to market their products. The data also revealed how important customer service is.
Customers explained that customer service is extraordinarily important to them and over 60%
explained that they would not go to a restaurant again if they had poor customer service the first
time. This connects directly with Kyle Yancey’s interview, where he explained that customer
experience is one of the biggest focuses for Jersey Mike’s. Once again, this further solidifies the
fact that restaurants that improve their customer service are effectively marketing to, and thus
While these results do strongly suggest that customers who use customer loyalty
programs and receive great customer service are more likely to return to a restaurant, more data
is needed. The questionnaire used was sent out mainly to high school students, so it would be
unwise to generalize the results to the whole population. Another possible issue with the study is
the lack of people who actually download the loyalty app. While the rate of retention is quite
astounding, the number of customers who download the app is quite low, averaging less than
50% of people who filled out the survey. Also, more interviews seem necessary to further
strengthen the claim that all restaurants are focused on customer service and brand loyalty. If
these claims are confirmed with a larger, more encompassing study, however, this is extremely
relevant data that shows the importance of customer retention. Since customer service and brand
loyalty are two of the most significant factors of retention, an increase in both of these factors
The results show significant evidence about the effectiveness of customer retention. This
field of marketing is generally overlooked and a variety of businesses tend to focus instead on
acquiring new customers. As of now, most restaurants spend a large majority of their marketing
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budgets on reaching out to new people. Instead, they should allot more of their resources to
Conclusion
attract new customers. But is this really the best approach? Dozens of new studies about the
importance of retaining customers have emerged, showing just how efficient it is to focus on the
customers that already exist. By generating brand loyalty through loyalty programs, along with
providing excellent customer service, these restaurants can bolster profits and avoid wasting
huge sums of money. When considering how to reduce expenses while simultaneously
References
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boost ROI." Journal of Accountancy, July 2011, p. 40+. Student Resources in Context,
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Androich, Alicia, and John Southerst. "The oracle of loyalty." Maclean's, 20 May 2013, p. 69+.
http://link.galegroup.com/apps/doc/A331686897/GPS?u=glen20233&sid=GPS&xid=5a3
Birch, Del. "Eyes wide open: a practical guide to business retention." Public Management, Aug.
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Question Responses
Have you ever downloaded the app or signed 20/42 (47.6%) have
up for the loyalty program of a restaurant? 22/42 (52.4%) have not
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