“It’s much easier to double your business by doubling your conversion rate than doubling your traffic.” — Bryan Eisenberg

We sat down with Jayson Tipp, data and analytics expert, to discuss 4 fatal mistakes made by restaurant marketers and how to avoid them. This is the full video (individual parts below).

“We restaurant marketers have become accustomed to doing our job without the benefit of knowing our customer. Not being able to identify, understand and reach one’s exact customers is just the way it’s always been in the restaurant industry. This fundamental problem leads to Four Fatal Mistakes for Restaurant Marketers.

I’m Jayson Tipp and I’ve spent my career using data to understand customer behavior and drive growth. I’ve done this for Starbucks, Redbox, Papa Murphy’s Pizza and others. At Redbox, we had amazing amounts of customer behavior data and I was able to analyze that information to drive sales, but at the restaurant chains I’ve worked with, I didn’t have that same detailed level of data to work with.

It was clear there were some changes restaurant marketers had to make in order to drive results from consumer targeting. For me, growing restaurant sales comes down to a simple concept:

Get more customers to come in, get them to come more often and get them to spend more when they do come in.

While at Redbox I developed a framework for mapping customer behavior based on this concept using customer spend and frequency.
This allowed me to focus our marketing communications, for example email, on specific strategies for different segments to change buying behavior. Although this type of analysis is common in many industries, it’s hard for restaurants to do and it’s certainly not standard practice, which brings us to the first fatal mistake made by restaurant marketers:

Treating all customers as if they are the same.

Most restaurants only know a small portion of their actual customers, typically it’s the 10% or so of customers that to sign up for a loyalty or email program. As a result, chains have little actionable insight on how to best market to the other 90% of their customers.
Chains often focus their attention (and marketing budget) on mass marketing through print, radio or TV. This is important, I have used this type of advertising as well…

…but it ignores a very impactful source of driving transactions, revenue and profit: existing customers that can be marketed to much less expensively. Most importantly, marketing to existing customers works better than mass marketing nearly 100% of the time. Benchmarks from the brick & mortar data science experts at Bridg indicates that among a typical restaurant chain’s customer base, about two-thirds have untapped purchase frequency. Not only is this an extremely large percentage it’s also typically an immense audience in terms of absolute numbers.

For example, let’s consider a 100 unit chain with an average frequency of 2.7 visits a year and an average customer ticket of $17. That chain has about 3M total customers and two-thirds of them have the easily-addressed potential to come at least one more time annually. If just 10 percent of those customers visited one more time each year that would result in a 2% increase in same store sales. How do we approach this problem? First, according to Bridg’s benchmark data, this group is typically evenly split between…

…new customers who can be converted to regular visitors and lapsing customers who may have forgotten how much they like the restaurant, or visited a competitor.

Both these audiences are opportunities for marketing outreach and engagement that can drive more regular, recurring visits.
In addition, chains usually have a solid 30% of their existing, regular customers who are also responsive to marketing engagement that drives more visits, sales and profits. Typically the rest have pretty regular, habitual behavior, but we can adjust messaging to them if/when their behavior changes.

The second fatal mistake commonly made by restaurant marketers:

Testing digital marketing rather than embracing it with a clear strategy and budget alignment.

Any restaurant marketer familiar with broadcast media knows that traditional media is expensive. Remember the old John Wanamaker adage: “Half the money I spend on advertising is wasted; the trouble is I don’t know which half.”

That’s because traditional marketing is about buying access to as large an audience as possible. Years ago this was all that the restaurant industry had at their disposal. I’ve reviewed a lot of analysis comparing marketing costs against incremental sales and profits generated. Today, there’s no excuse for continuing any part of the marketing mix that does not provide ROI. 

Yet, the restaurant industry has been one of the slowest to adopt digital marketing. Companies that are an exception to this and who’ve led the way most aggressively in the digital space—Dominos Pizza, Panera Bread, Starbucks—it’s no coincidence that these brands have outperformed the industry over the last few years. In fact, increasingly these leaders are more and more talking about the role of digital marketing in driving their success.

Following this lead, in 2016, Subway announced a major, multi-year, multi-million dollar investment in building their digital marketing capabilities. These techniques and tools used to be available only to large brands with billions in sales. Not any longer. That’s one of the most exciting aspects of digital and database marketing. It’s highly scalable, you start with the right-sized budget and tactics…

…but you have to make the commitment and make it part of your growth strategy.

The third fatal mistake made by restaurant marketers:

Spending more on consumer “look-alikes” than actual guests.

Most marketing leaders in the industry have participated in or commissioned market research studies resulting in consumer segmentation. You know, those 4 to 6 pithy descriptions of your customer base or the marketplace commonly referred to as “personas.”

We marketers feel a little better about their mass advertising strategy because it’s really focused on just those key personas, right? Simply marketing to a broadly defined audience hoping campaigns perform better is unnecessarily expensive – on average, according to Bridg 2016 benchmark data, this approach still ends up running restaurants an average $26 cost per acquisition.

Today, with the right technology, and leveraging the efficiency of digital marketing, marketers can be ultra-specific on who they’re trying to reach…

In other words: Marketers can be ultra-specific on how they spend their budget. With these new tools, restaurants are driving transactions with CPAs as low as $6 focused on the consumers they already know are their best, most frequent, highest contributing customers.

Finally, the restaurant marketer’s fourth fatal mistake:

Assuming they don’t have the data to implement a targeted marketing approach because they’re ignoring the value of the data in their point of sale.

The transaction-level data stored in the restaurant POS is a treasure trove of insights about consumer behavior that can be harnessed to drive overall business strategy and marketing. By using technology to tie individual transactions to individual customers and depending on how much historical data restaurants have, often years worth of insights can be revealed nearly instantly.

Further, a restaurant’s POS has information on nearly every single one of their customers whereas loyalty, email, online ordering and other opt-in programs typically have a 10-20% membership rate.
So marketers can open themselves up to engaging often many millions more highly-receptive customers than before.

So, a quick wrap-up of the four fatal mistakes commonly made by restaurant marketers:

  1. Treating all customers as if they are the same. Different audiences require vastly different marketing outreach and engagement, understanding these audiences through data science will enable you to drive more regular, recurring visits.
  2. Testing digital marketing instead of embracing it. You must make online engagement a part of your growth strategy: it’s highly scalable and extremely cost-effective and its the future.
  3. Spending more on “look alikes” than actual guests. With new digital tools restaurants are driving transactions with CPAs as low as $6 instead of $26. It’s a no-brainer.
  4. Ignoring the data in their point of sale. Email, online ordering, loyalty and other opt-in programs only capture a small number of customers while your POS captures everyone and has the most real-time data.

Once again, I’m Jayson Tipp, thanks for watching and stay tuned for more learning about turning restaurant data science into action that drives sales.”