The benefits of customer loyalty programmes are well established in the world of retail. However, as loyalty specialist Ikano Insight’s Barry Smith explains, restaurants and hotels are in an enviable position to make the most of their customers’ leisure habits.

We’re all familiar with the idea of collecting rewards when we shop. What started out years ago as a few adventurous retailers experimenting with harnessing customers’ loyalty has morphed into a global retail phenomenon. Loyalty schemes, it has been consistently proven, are instrumental in delivering incremental profitability.

Now, the world of hospitality is starting to get in on the act, but has brought with it its own unique set of circumstances, benefits and challenges.

The restaurant industry, in particular, is privy to the holy grail of the customer relationship – the emotional attachment from repeat visitors. A recent study in the US found that 42% of diners are loyal to their favourite restaurant, regardless of whether it is running a promotion or not – only 9% said they followed price.

Of course, this will affect certain types of restaurant more than others. Humans inherently return to what makes them feel comfortable, and the knowledge of getting food they will like and great service, amongst other things, plays a key part. People go to both restaurants and hotels for the whole experience and not just a product – the ambiance, the service, the food and the brand itself all play their part.

If this is the case, though, then there is space for other restaurants to tempt those customers in – as well as attract the loyalty of the other 58%. In an industry so in tune with our social lives, emotional rewards may yield better results.

These can take many forms, but are most effective when they focus on experiential aspects. For example, a restaurant could offer tasters of new menus and the chance for its most loyal devotees to try out dishes before the 'ordinary' public. Similarly, those who visit a certain number of times could be offered a free dessert, as an incentive to return regularly.

The latter, of course, is similar to stamp or points collecting initiatives popular with coffee shops. Known specifically as continuity schemes, these have until recently, been somewhat ignored by the hospitality trade. However, that is starting to change, with more mass-market venues such as Nandos offering similar freebies with a certain number of visits.

Although collecting stamps may be a little at odds with more formal or prestigious restaurants and hotels, the impact of the reward remains just as enticing for the deal-savvy customer. What is important is the link between the customer and their transactions, and to get the right mix of rewards for your particular market, in terms of hard, soft and emotional benefits, and understanding them enough to know what will keep them swiping their cards and coming through the door.

Hard incentives are more price-focused, such as having a 25% reduction on a food bill that week, whilst the soft options are the freebies. Both of these should work equally well in their own right, because the reward is the same value at the end of the day. That said, each will only be effective if you make very clear what the reward will be and exactly what they will get for it. For the restaurateur it is using the correct combination of these benefits to drive the required behaviours, whether that be to drive frequency or increased value on a visit for example.

With an increasing number of points schemes on the market, particularly in retail, no one programme has a universal measure of what each point is worth. This can lead to confusion, and a reluctance from customers to participate. This is why the end benefit needs to be simple and clear – honesty goes a long way.

The difference also lies in the presentation and delivery. For some markets, a more exclusive club membership card or register, on which to collect rewards, may be more suitable. For others, a smartphone app could be the way forward. This isn't just about how technologically literate your customers are, because these methods have different connotations. An app is more of a mass-market tool, where as the more low-tech membership approach is deliberately more selective, appealing to the more discerning diner or guest.

This understanding doesn't necessarily come easily, but investing in methods of capturing data about your existing customers, and learning from that data what they like about your business, is what enables you to play to your strengths in building relationships with them.

Data capture should occur in the same exchange as the customer signing up to a loyalty programme – be it a simple mailing list subscription or a more in-depth membership. Use the opportunity to profile your visitors and log the reasons they came, together with why they would (or wouldn’t) return. This then gives you a blueprint for how you should target them going forwards, such as offering them a free night’s stay, or their favourite meal from the menu for their wedding anniversary as a reward.

Hotels have the added benefit of going through this process at either the check-in stage or, better still, during the online booking process. Although restaurants are more commonly using the latter, it is still most reliable for a waiter to talk customers through a loyalty scheme. Simply leaving cards on tables or in rooms, though, will never produce as many instant results.

For chain businesses, a successful loyalty scheme can work even better when it encourages customers to experience other venues. Suggesting specific new locations can be very tricky, but tying such offers in with popular events – such as one in Edinburgh during the Festival – can be one method.

Otherwise, simply offering rewards for trying out a new restaurant or hotel location in the chain can increase customer loyalty by approximately 20% in some cases.

There are no hard and fast rules about which type of loyalty scheme works best for different sectors because, particularly in hospitality, customers have other more emotional factors involved in their judgements. However, getting the balance right in appealing to what people want can deliver the double-whammy of boosted profitability and happy customers. What’s not to like about that?

Barry Smith is a senior consultant at Ikano Insight. For more information and advice visit