Customer Retention for Restaurants: The Psychology of Loyalty Programs

Customer Retention for Restaurants: The Psychology of Loyalty Programs

Increase Your Profits With This Customer Retention Strategy

No matter the type of restaurant you operate, you definitely would want your customers to become loyal customers. However, Covid-19 has made customer satisfaction and retention a lot less straightforward. Because of strict social distancing mandates and capacity limits, restaurant owners have found it harder to charm customers into coming back. Research says loyal customers spend 67% more than new ones and costs up to 7 times more to acquire new customers. Loyalty programs provide restaurants with a unique opportunity to examine customer behavior and tailor their service offerings accordingly. In this article, we will explore customer retention and its importance. Also, we shall clarify the psychology of customer loyalty and how customer loyalty can boost repeat business. Read along.

What is customer retention?

Customer retention refers to the activities and strategies used to reduce customer defection and increase existing customers. In other words, it is the action you take to keep people coming back and encouraging them to spend more. The primary goal of customer retention is to help businesses retain customers often through customer loyalty programs. Customer retention starts right from a customer’s first contact with the company and continues through the relationship.

Why is it Important?

Customer retention is necessary for every business and even more so for restaurants. While businesses would traditionally spend money on customer acquisition, it is not so for most restaurants, and this is because of the notoriously thin profit margin they operate by. So, it is necessary to note that selling to a customer you already have a relationship with is a cost-effective strategy than customer acquisition. You spend a lot less on retaining customers and do not need to attract, educate, and convert new ones, thus, maintaining your profit margin. Returning customers are also valuable to restaurants because they have expressed interest in your services and are engaged with your business, making it easier to capitalize on their experiences with your restaurant. They are also a lot likely to spend more because they are familiar and comfortable with the business. This essentially helps in maximizing profits. 

Ultimately customer retention is necessary to your restaurant because these strategies aim to provide guests with a positive experience that will keep them coming back. A satisfied customer is most likely to do word of mouth marketing that helps you organically acquire new customers. 

How Customer Loyalty Program Can Improve Customer Retention

Now that we know what customer retention is and have established its importance to restaurants, it is equally important to understand how loyalty programs play into all this and understand why loyalty programs work. We need to cover the psychological phenomena and cognitive biases that control customers’ willing participation in these programs.

1. Motivation to Earn Rewards

There is very few psychological factors more powerful than motivation. Motivation is the driving force that makes a person believe that they can achieve something significant and pushes them to reach their goal. In a customer-brand relationship, motivation is engineered by a business’s ability to deliver on promises made to customers. For example, when a restaurant offers a loyalty point in exchange for completing specific actions, this motivates customers to stay engaged with your brand. This is the gradient effect, which suggests that the closer someone is to reach a goal, the more effort they will put into achieving it. However, it is necessary to note that these reward needs to be frequent and attainable else your customers may lose their motivation entirely. 

2. Reward Positive Customer Behavior

It feels good to be rewarded and if you are rewarded for doing something that benefits your restaurant, it is a win-win situation for all involved. When you reward customers for completing actions at your restaurant, you encourage customer behaviors. Customers are more likely to enjoy their experience with your business and a solid emotional foundation is laid where your business becomes the first thing in their mind when they think about your industry. More importantly, your customers will be encouraged to continue performing those same actions to reap those benefits again! This establishes a relationship that they grow to trust and look forward to. They become more willing to complete actions they may not have otherwise! With this solid emotional foundation laid, your restaurant becomes their first choice for future patronage, further developing the rewarding experience your loyalty points put in motion.

With so much competition in the restaurant business, loyalty is by far one of the most valuable things a restaurant can secure from their customer. Rewarding customer’s loyalty over time helps establish trust and a long time commitment between your restaurant and the customer. Loyalty program encourages customers to keep returning to your restaurant to avoid losing accumulated points. Loyalty points encourage frequent interactions that become part of a routine. Considering the many restaurants available as options to your customers, loyalty points have the power to solidify a long-lasting relationship with customers that is essential for success

Leveraging Psychology to Create an Awesome Loyalty Program

1. Know your customers

You probably already use your point of sales system to draw insights about your business, and if you don’t you can start by knowing how to here USING POS SOFTWARE TO GENERATE REPORTS: HOW EFFECTIVE? (, A customer-loyalty-program allows you to delve deep and gain a better understanding of what your customer wants. ICG software has a customer relationship management tool that allows you to create detailed customer profiles that provide data. Such data include the date & time of the last patronage, the amount spent, meals/drinks bought at a specific time/period, times they come into your restaurant, etc. You can use this valuable information to make decisions that will motivate repeat business. 

2. Find rewards they need

For motivating customers, there is a need for you to give your customers something useful to them. It might be free desserts or cocktails, but the most important is that you know what they want to get a positive reaction towards it when they receive it. You can do this by taking a look at your menu and examining your most popular meal, cocktail or dessert or even take it a step further by asking what they would be interested in that you do not yet offer. This shows that you are sold to customer service and would put a smile on their faces

3. Demonstrate value upfront

For a loyalty program to work, you need to be very transparent about its offers, because customers what to know and be sure that their time and effort will not be wasted. So instead of making them wait for it, demonstrate the value your loyalty program is offering. This helps in strengthening your relationship with them and improving the personalized experience with your restaurant.

4. Launch and track marketing campaigns: 

Regardless of the type of loyalty program you settle for, make sure that your restaurant loyalty program stays at the fore of your customer’s mind if you want to increase retention. Most points of sales software have an inbuilt marketing tool designed to get your message across to customers directly. This means that if you have a special hour offering discounts you can disburse this information directly to your audience without hassle, your POS data can also provide insights and filter guest by criteria should in case you have programs restricted for VIP customers only. You can also get insights on how well your loyalty periods work, for example, say you did a buy three desert get one free promotion in the past month, you can use your loyalty tool to see how may customers took advantage of this offer and work on how to optimize for future success.


Learn more about the Loyalty Program by contacting us at