Details on Chipotle's forthcoming loyalty program are sketchy — a spokesperson wouldn't offer any specific information on the plan — but it seems the rewards program does now have a name. On May 16, Chipotle trademarked the name "Chiptopia" for use as "a loyalty program for restaurant customers."
The company has seen the largest decline in sales among what it considers its most loyal customers
In an earnings call with investors in April, executives of the fast-casual burrito giant announced they would be unveiling a loyalty program as a way to bring back once-loyal customers following a string of food safety issues. The company has seen the largest decline in sales among what it considers its most loyal customers — those that visit more than 25 times per year — and among those that only visit two to five times per year.
Though executives provided few details on the program, they noted that it would be temporary and would run in the summer and fall. One executive noted, "there's always the possibility of a permanent program [down the line]."
The company has so far worked to bring back customers by offering free food — though some experts note that sending coupons for free burritos en masse likely won't bring back Chipotle's most loyal customers. A loyalty program, they argue, will only be successful if it's tailored to the consumers.
"Chipotle has defined its loyalists as those that visit 25 times a year, but what's fascinating is that this is a business that doesn't seem know who those individuals are," says Zach Goldstein, CEO of customer loyalty and rewards system Thanx. "Because if they did, they would send those free burrito coupons to the most loyal customers."
Goldstein says he received a coupon for a free Chipotle burrito in the mail, addressed simply to "resident." "This is often called a megaphone offer — it's tossing a blanket of discounts to anyone who will take them. The result is a very large number of people who come in, redeem the discount, and never come back."
The result is a very large number of people who come in, redeem the discount, and never come back.
In order for "Chiptopia" to be successful, Goldstein says Chipotle should work on gathering customer data and using a bulk of its marketing dollars to go after those once-loyal customers. Among Thanx's restaurant clients, he notes that the top 25 percent of customers drive approximately 66 percent of revenue. Added to that is the fact that, of all the people who visit a particular restaurant today, 50 to 70 percent won't be back tomorrow.
"They need to focus on the people that matter," he says, honing in on a potential strategy. "Pretty immediately, they should take whatever marketing budget they're planning to utilize on discounts, promotions, etc., supercharge that budget for VIPs, and diminish that budget for just about everyone else. They seem willing to give a free burrito to almost everyone, but they'd be much better off giving five free burritos to a lifetime loyalist rather than one burrito to someone who will never be back."
Megan Flynn, EVP of Program Development at loyalty services company Excentus, says loyalty programs are altogether different from discounts. Coupons and discounts are solid options for boosting sales temporarily, but loyalty programs take time.
"I personally feel it would be very disruptive to put a loyalty program out in the market and take it out a few months later," she cautions. "People would then start to expect it."
Chris Luo, who works in marketing for loyalty technology company FiveStars, says rewards programs can impact a restaurant's bottom line in three ways: By getting loyal customers to come back even more frequently, increasing their "basket size" (aka order size), and by winning back lost customers. At this point, Chipotle needs all three.
"What we've seen is that you can get someone to come back 20 percent more frequently [in terms of reducing time between visits] because of a loyalty program," says Luo. The reason? As the customer gets closer to a reward, he or she comes in more frequently.
Coupons and discounts are solid options for boosting sales temporarily, but loyalty programs take time.
Starbucks' rewards program has been historically successful for the coffee giant, though a recent revamp angered customers. In the past, those enrolled in the Starbucks rewards program would earn a "star" for every purchase, and a free drink after accumulating 12 stars. Now, customers will earn two stars for each dollar spent, and it will take 125 stars to get that free drink.
Though re-vamping such a popular program might seem like a bad idea, Luo says the program could prove even more successful than the previous version. "Starbucks is essentially trying to incentivize more spend-per-visit. Typically, our research has shown that restaurants can see a 10 to 15 percent lift in [spend per] transaction if they do it that way."
Because customers are so focused on obtaining their ultimate reward (be it a free drink or a free burrito), they're willing to spend more to get there.
Luo says he is interested in finding out how Chipotle's reward program will work. Though it's unknown what shape "Chiptopia" will take — whether it will be similar to Starbucks' program, for instance — Luo notes that pre-paid loyalty cards tend to drive frequency more than simple coupons.
Like Goldstein, Luo says a customer database is imperative — not only does it allow a brand to know who their top customers are, but it reveals what's driving them to come back. The company hopes that the addition of chorizo to its menu will lure new and old customers alike — but how will they know if it does?
"[Without a database], how will they know the impact of chorizo on customer retention? Do people that eat the chorizo come back more frequently than people that choose chicken? Because you can tie loyalty to the transaction, you can actually figure out the impact of menu items on customer retention."
Loyalty apps and programs can also allow consumers to interact more closely with a restaurant, often offering a space to review their dining experience. "If you have an absolutely horrendous experience, a customer can let the restaurant know. And if it's really bad, that restaurant can then respond with: 'Hey, sorry. The next burrito is on us.'"
It's kind of like dating. You want to get to know the members based on their purchase activity and behaviors
Flynn says her company relies on "billions of dollars worth" of member data. "It's kind of like dating," she jokes. "You want to get to know the members based on their purchase activity and behaviors, but also determine how often they go to an app, what it is they're looking for on an app. That way, you can send more relevant offers."
Chipotle has made use of promotions in the past, like Atari-style games that take aim at artificial ingredients. "One thing to keep in mind is that Chipotle has historically done a very good job with non-discount related promotions — games promoting ingredients, festivals," says Goldstein. "A very on-brand thing that we should see would be VIP experiences that really promote to the top customers." They'll have to figure out who those top customers are, though.
Of course, a loyalty program could ultimately be the one stone that hits two birds for Chipotle — offering discounts while providing a customer database along the way.
"Chipotle's probably lost a lot of customers recently," says Luo. "But now that they've improved things, they don't have a database, or a way to win back those people. A loyalty program gives you a massive customer database and you can engage people through SMS, email, etc. Maybe Chipotle's trying to protect themselves for the future." If there's another public health outbreak on the horizon, Chipotle will know who to call with the offer of a free burrito.