Savvy food business owners know that learning how to win back lost restaurant customers makes economic sense.
According to this article in Harvard Business Review, it can cost anywhere from five to 25 times as much to acquire a new customer than to retain an existing one. The reasons seem obvious: the existing customer is already familiar with your brand and product so you don’t need to spend the time and expenses on the marketing that’s required to familiarize them with your restaurant concept, menu and pricing.
However, while it’s probably cheaper to win back lost restaurant customers than to find new ones, it’s not always clear how exactly the business owner should go about doing that in the most profitable way possible.
A study published in the July 2015 issue of the Journal of Marketing provides some insight into what types of customers are most likely to return and what types of offers received the highest response rates.
Which Lost Customers To Target?
The study examined data from more than 53,000 customers who left a telecom company over a seven-year period. While the telecom industry has some unique qualities and problems with churn, the lessons from this study are applicable to the restaurant industry.
For example, the study found that customers who left because of price are more likely to return than those who left because of poor service. Those who left because of both reasons were the least likely to return. Those facts are not likely to be news to restaurant owners.
On the other hand, those customers who referred other new customers and those who never complained or had their complaints resolved satisfactorily, appeared to be the easiest to win back.
Obviously, capturing this data on restaurant customers can be challenging but it’s not impossible. Managers could theoretically keep notes on customer complaints in a point-of-sale system. And, restaurant owners can send an email survey to customers who have not returned (provided that you have their email address from a previous marketing campaign or possibly a loyalty program) and ask them for their feedback on why they have returned for a repeat visit.
If you can capture the data, it’s easier to segment these lost customers into different lists so that you can target them with different promotional offers or discounts.
What Offers To Send?
The study cited the results of one win-back campaign that tailored different offers to different types of customers. Those who left because of price were offered a discount. Similarly, those who left because of poor service were offered a service upgrade. Another group could receive a bundled discount and service upgrade.
The bundled discount and service upgrade resulted in the highest success rate of winning back old customers. The second highest success rate came from the group that received a stand-alone discount offer.
But, the researchers noted that the bundled offer was the most expensive offer and resulted in the lost return on investment. On the other hand, the stand-alone service upgrade was the least expensive offer and resulted in a higher return on investment despite the lower success rate in getting lapsed customer to return.
The takeaway for restaurant owners is that offering a price discount may result in more customers coming back for a return visit but the cost of the discount needs to be included in assessing the overall return on investment. If it’s cheaper to offer an upgrade of sorts (say, complimentary valet service for customers who complained about parking) than to offer a straight 10% discount, than you will need to calculate the overall profitability of one versus the other and decide which one is more worthwhile.
How Long Will These Win-Back Customers Stay?
You may be asking yourself: ‘What’s the point in learning how to win back lost restaurant customers if they’re just going to bolt again soon afterward?’
If the telecom industry is any indication, then the effort to win back customers is worthwhile. The researchers found that in general these returning customers stayed longer during their second run with the company and they became more profitable. In fact, their average lifetime value rose to $1,410 during their second time around versus just $1,262 during their initial time.
Have a question about the restaurant industry or point of sale systems? Contact us today to speak with someone.