Special Report: Customer Counts

Consumer research and industry experts offer insights as to why operators lose customers�and how to win them back.

By Allison Perlik, Senior Editor -- Restaurants & Institutions, 5/15/2007

Lost customers equal lost revenue, plain and simple. No matter how healthy the profits, no operation can afford to ignore guests who for one reason or another choose not to return.

Even leading foodservice brands can find themselves in danger of losing a significant audience: Among patrons at 58 top quick-service and casual-dining chains, an average of five in 10 are less than 50% sure they’ll return, according to newly published research from Restaurant Marketing Group (RMG), a Centennial, Colo.-based research and consulting firm. Location, food quality and price/value top the list of factors contributing to customer rejection.

Consumers’ considerable uncertainty about revisiting specific brands—and the market share these patrons represent—means that developing and maintaining customer loyalty is more important than ever to restaurants’ long-term success. RMG’s 2007 Leaky Bucket Study gauges how well chains are performing in this arena; the study measures the strength of chains’ customer bases by determining the likelihood that consumers will make a return visit.

The survey, conducted online using a representative sample of 2,200 U.S. consumers ages 18 to 55, describes patrons who are more than 90% sure they will return to a brand as a chain’s "active customer base"—a figure significant for its positive correlation with market share in key segments (see graphs page 47). Diners who are less than 50% certain they will be back are termed a brand’s "leaky bucket," or consumers the concept is in danger of losing.

While the research doesn’t break out differences between brands’ casual visitors and the heavy users who potentially have higher rates of return, the high percentage of "leaky bucket" customers the study uncovers raises a red flag, says J. Walker Smith, president of Chapel Hill, N.C.-based consumer-marketing consultancy Yankelovich Inc.

"It’s likely that these chains are doing their own tracking of the satisfaction and probability of returning for their most-valuable customers, but these numbers indicate a real weakness that is probably continuing to cost them money," he says.

Forfeiting existing patrons may be more expensive than operators realize. Acquiring a new customer costs five to 10 times more than keeping an existing one, says RMG Founder and President Arjun Sen, who notes that once consumers have left, it also takes nearly twice the effort to entice them to return than it does to attract new guests.

"Trying to recapture a consumer is more difficult than getting them to come in the first place, because you are dealing with someone who has lost faith, who doesn’t think you’ve lived up to expectations," says David Njite, an assistant professor specializing in consumer behavior at Oklahoma State University’s School of Hotel and Restaurant Administration in Stillwater. "Restaurants should try multiple techniques to recover these guests, because there are plenty of competitors out there waiting for those customers."

On Location

Among seven choices consumers could select as the main reasons for their uncertainty about returning to specific brands—location, food, menu variety, price/value, service, atmosphere and family-friendliness—location proved the biggest issue at quick-service (QSR) and casual-dining concepts. This makes sense in today’s time- and convenience-centered culture.

R&I’s New American Diner Study also bears out this data, revealing that more than one-quarter of consumers base restaurant/dining decisions on convenience—of which location is a key function—most of the time, while 60% do so at least some of the time.

Operators without means or desire to open a unit on every corner can address this challenge in two ways, Yankelovich’s Smith advises. Restaurants can make the dining-out experience more worth the time it takes to enjoy it (a strategy more applicable to casual- and fine-dining restaurants), or they can make the practice more efficient. For the latter, technology will be a go-to solution, Smith says, whether that means accepting orders via handheld digital devices or using self-service kiosks, already tested at companies including Oak Brook, Ill.-based McDonald’s and Miami-based Burger King.

Pointing out that convenience relates to more than just time, Oklahoma State’s Njite suggests operators also can extend hours to accommodate diners’ schedules.

"We’re moving toward 24-hour operations, and that creates a lot of convenience for the customer in terms of timing," he says. "They can work late, pass by and pick up something to eat."

Quick vs. Casual

While consumers’ top reasons for not returning to brands vary little by segment (i.e., burgers, pizza, Mexican), one notable difference emerged among quick-service and casual-dining concepts. Food ranked as the second most-cited reason behind QSR customer defections, but it was cited by a significantly lower percentage of casual-dining customers.

Interestingly, some brands boasting the highest active customer bases—among them McDonald’s, Milford, Conn.-based Subway and Irvine, Calif.-based Taco Bell—also posted the highest percentages of rejection based on food in their segments, suggesting that for these brands’ patrons, speed, location and convenience may top food quality as a priority. Overall, Calabasas Hills, Calif.-based The Cheesecake Factory earned the fewest food-related complaints, named by just 10% of customers, compared with 73% for McDonald’s.

Price/value, not food, proved the second-greatest concern for customers of the nine casual-dining chains covered in the RMG study. Nearly four in 10 diners cited price/value as a main reason not to return to these brands, significantly higher than any QSR concept.

Just fewer than one-third of consumers say they visit only restaurants that give them value for their money, according to R&I’s New American Diner Study, and 43% take into account all aspects of the dining experience—not just price—in judging that value. Because casual-dining concepts by nature can’t compete with QSRs and family-dining restaurants on price alone, it’s essential that they find other ways to make customers feel they’re getting their money’s worth.

"Value is the currency that we use in talking about all consumer decisions—that’s what it boils down to," says Michael Solomon, professor of marketing at Saint Joseph’s University in Philadelphia and author of "Consumer Behavior" (Prentice Hall, 2006).

Plentiful portions long have been casual dining’s value proposition, but Solomon suggests down-sized portions also can add value by assuring diners that restaurants will work with them to maintain their health.

Consumers’ growing interest in wellness and products with ecological value also means that operators can communicate value by highlighting organic and sustainably produced products, Solomon says.

Njite points to loyalty programs as a value proposition applicable for QSR and higher-end brands and notes the importance of developing "commercial friendships."

"Commercial friendships are very important when it comes to building loyalty," he says. "It’s about recognizing regular customers, acknowledging their presence and giving them a priority."

At Your Service

Despite the premium so many foodservice operators place on top-notch service—or maybe because of it—service proved a surprisingly small factor in consumer decisions not to return to brands, according to Restaurant Marketing Group’s 2007 Leaky Bucket Study. The majority of chains saw 10% or fewer of customers citing service as a main reason for rejection.

Quick-service concepts make up the bulk of the chains surveyed, so the limited amount of time guests interact with staff could explain consumers’ relatively low level of complaints, theorizes David Njite, assistant professor at Oklahoma State University’s School of Hotel and Restaurant Administration in Stillwater.
Consumer-behavior expert Michael Solomon, professor of marketing at Saint Joseph’s University in Philadelphia, speculates that consumers may not discern significant differences in service at these chains. If so, it could prove an opportunity for operators, Solomon says. "Sometimes when you think about the criteria consumers use to judge your brand, you have to play a more proactive role in telling them what those criteria should be," he says. "If you’re good at something, like service, you need to make people realize you’re good at it."

Pie Players

Not only do pizza chains beat out all other segments for the highest average percentage of customers less than 50% sure of returning, according to Centennial, Colo.-based Restaurant Marketing Group’s research, but also the über-competitive segment now finds itself facing new rivals. Canton, Mass.-based Dunkin’ Donuts and Milford, Conn.-based Subway now serve pizza, too. Both concepts offer fast-cooking, individual-size pies that come with traditional toppings of cheese, pepperoni and sausage.

The increased competition should spur pizza brands to seek greater innovation in menu development, says restaurant industry consultant William H. Bender, principal of W.H. Bender & Associates in Santa Clara, Calif. He notes that although Dunkin’ Donuts’ and Subway’s pizzas likely will begin as niche offerings, sales may grow if the products are well-executed.

Isidore Kharasch, president of Deerfield, Ill.-based restaurant consultancy Hospitality Works Inc., believes the new pizzas are more likely to challenge similar offerings found in convenience stores rather than the more-premium products served by full-service and delivery pizza brands. For Subway, the product may help lure guests from its competitors that don’t have pizza options, he says. "If I’m going out to lunch with five people and one wants pizza, I might choose Subway over Quiznos Sub," he says.

Welcome Back

Winning back unhappy customers is an entirely different—and more difficult—marketing proposition than getting guests in the door in the first place. But restaurants have good reason to make every effort to recover diners they’ve lost.

"You don’t simply make up for a high-frequency diner by bringing another warm body into the restaurant," says Jill Griffin, author of "Customer Loyalty: How to Earn It, How to Keep It" (Jossey-Bass, 1995) and co-author of "Customer Winback: How to Recapture Customers—And Keep Them Loyal" (Jossey-Bass, 2001).

The challenge, Griffin explains, is that many restaurants don’t have systems in place to identify their best customers and find out when they’ve lapsed. Loyalty programs provide a simple way to track guests and the frequency of their visits while rewarding diners for their patronage. Another option for casual- and fine-dining restaurants is to establish point-of-sale systems that double as customer databases.

If your database reveals guests who haven’t visited in a while, use personalized communications to let them know they’re missed and invite them back, possibly with a coupon, advises Michael Solomon, professor of marketing at Saint Joseph’s University in Philadelphia. E-mail and text messaging are easy ways to communicate with customers.

Griffin also emphasizes the importance of personalized marketing, which lets customers know they are important and sometimes asks why they left. E-mail is the most cost-efficient choice, she says, but mailings with handwritten addresses can lend an even more personal touch.