’ll never forget the first time I learned the importance of guest experience. I was 15 years old, working as a server at a restaurant in a country club. My managers made one thing clear: guest experience was the most important attribute of my job as a server. The path to a great guest experience was simple, yet hard: take the time to learn guests names, preferences, and hobbies.
One of the first guests who sat in my section had a USS Arizona hat on. After I took his order, I asked him if he was in the Navy during the war. I shared that my grandfather flew B-24s, and we hit it off. I remembered that his name was Bill and that he drank Arnold Palmers.
Once the pandemic recedes, people want to feel human again. They want to reconnect with their friends and family. Going out to restaurants will be one of the great joys people experience.
Historically, restaurant leaders used to win by driving transactions—keeping tabs on cover counts and obsessing over same-store sales. Winning didn’t require that you knew who was dining with you, why, or how often. Per the Arnold Palmer story above, some team members knew the guests, but that information didn’t get disseminated to all parts of the business. From a practical perspective, customer data often lives with specific team members, but isn’t brought into finance, marketing, culinary, labor, and real-estate decisions.
Brought on by changing consumer preferences for personalization (think individualized recommendations from Netflix, Amazon, DoorDash, and Instagram) and the pandemic driving tech adoption everywhere, there has been a fundamental shift in the restaurant industry. Winning restaurant brands in every category are personalizing the guest experience to maximize customer lifetime value with Customer Intelligence.
Before I dive into why and how, it’s important to have a basic understanding of customer lifetime value, also known as CLV, CLTV, and LTV.
What is Customer Lifetime Value (CLV)?
Customer lifetime value is the estimated profit generated from each individual customer from the first visit through the last. In other words, it’s how valuable a customer is to your business, not just on a transaction basis, but with regard to their recency, frequency, and monetary spend across the entire relationship.
Note: “Lifetime” does not refer to the person’s actual lifespan. No “til death do us part” metrics here.
Why Customer Lifetime Value is Important for Restaurants
After a tumultuous year, and with the return of on-premise dining, restaurant brands now have to harness and act on guest data in order to remain competitive. In fact, restaurant industry analysts and investors are increasingly considering customer-level economics over same-store sales data.
Given the accelerated adoption of data-driven technology across the restaurant industry, it’s safe to say that any brand that doesn't prioritize customer lifetime value is now at risk.
Whether you recognized it or not, this shift to customer thinking did not happen overnight. Ecommerce and entertainment giants like Amazon, Netflix, and Disney have been maximizing customer lifetime value for years with highly personalized user experiences—a process mirrored perhaps more obviously on social media and through digital advertising. As a result, we as consumers have come to expect things like email campaigns tailored to our unique interests, promotions triggered by our recent purchases, and recommendations based on our viewing history.
The restaurant industry is lagging behind on this front, largely because of legacy POS systems, consumer networks that “own” the guest data, and other fragmented point solutions. These blockers make it impossible to know the value of each individual customer because the data exists only in disconnected silos.
The future of the restaurant industry lies with those brands that are taking a page out of the retail playbook. Restaurants can learn from the likes of ecommerce by harnessing actionable guest data with a single integrated system and applying the customer lifetime value metric to operations, marketing, and business.
With CLV, restaurant brands can:
- Fine-tune day-to-day operations through revealing insights, such as driving factors for guest loyalty and maximizing them
- Analyze different guest segments based on individual behaviors
- Quantify results of marketing dollars spent, staff training, menu optimization, real estate selection, and more
- Discover exactly where and why guests spend money
Given that acquiring a new customer is proven to cost far more than retaining an existing one, increasing the value of your existing customers—with the support of comprehensive guest data—is a critical way to drive growth.
How Restaurants Can Maximize Customer Lifetime Value
Leading brands like Starbucks, First Watch, California Fish Grill, and bartaco have proven that restaurants can maximize customer lifetime value, increase guest frequency and retention, and, ultimately, boost revenue by focusing on individual guest behavior.
The secret to their success? Customer Intelligence. In the end, the brands that know their customers best and do something with that intel—win.
By harnessing guest data and analytics—from 100% of customers, not just loyalty or rewards club members—restaurants can tailor every action, communication, and business decision to the behaviors of their most valuable guests.
- Knowing exactly who’s behind every curbside order and if they’re also dine-in regulars
- Sending targeted SMS messages at just the right moment that feel like they’re coming from a friend
- Targeting lookalike audiences for the top 20% of your guests on paid search and social media (proven to drive down customer acquisition costs to under $1)
- Alerting managers which table touches to prioritize during a busy shift
- Having a regular’s favorite drink prepared upon arrival
- Or even, in the case of bartaco, slipping a branded onesie into an expectant mother’s to-go bag
Here’s how a few pioneering restaurant brands have used Customer Intelligence to enhance the guest experience.
Entering 2020, First Watch knew little about its customers beyond intuition and direct observation. When COVID-19 hit, the brand realized that in order to better serve customers, they needed to understand guest behavior at a micro level. Rather than continue to focus on transactions, First Watch embraced the customer lifetime value mindset and business model.
After implementing a new restaurant tech stack, First Watch gained a comprehensive view of its evolving customer base, stitched together by millions of data points across multiple sources. Within six months, this newly painted picture, supported by structured analytics, presented clear opportunities for the brand to maximize CLV.
By analyzing guest behavior down to the time of week and sales channel, First Watch discovered the optimal way to grow its newly established off-premise sales channel. Instead of competing with a dine-in occasion, the brand found opportunities to complement a traditional dining occasion and grow frequencies through extended usage.
California Fish Grill
When online sales jumped from 7% to 40% with the pandemic, California Fish Grill saw an opportunity to get to know its customers better through their digital footprint. For instance, the company wanted to see how many of its top 5% customers were actually trying limited-time offers, or simply sticking to their favorite dishes.
With Customer Intelligence, California Fish Grill was able to identify exactly who its most valuable guests are, how to attract more, and how to retain them for life. Through a single, integrated system, the company could analyze restaurant guest behavior across every interaction—on-premise and off-premise—and start designing the guest experience around their preferences.
As California Fish Grill expands into other markets and some of its customers move, the brand can continue to learn from guest behavior over time and across state lines. By focusing on CLV, the brand has gained valuable insight into guest interaction and sentiment over time, both of which have enabled them to decrease customer acquisition costs.
With the arrival of COVID-19, bartaco has had to rely on Customer Intelligence to create an immersive experience for guests online, on-premise, curbside, and at home. Through the use of 1MM+ searchable guest profiles, bartaco’s Marketing, Operations, and Finance teams can view guest preferences, items ordered, lifetime spend, and complete visit frequency data in order to make data-driven business decisions.
For example, when scouting real estate for new bartaco locations, the restaurant brand looks to the CLV metric for insight into its most valuable guests. And, as bartaco continues to scale, the brand uses Customer Intelligence to maintain its “anything for the guest” hospitality model and culture—individualizing the dining experience whenever possible.
Moving from Transactional Thinking to Customer Thinking
At the end of the day, transactions still matter. After all, boards continue to grill C-level executives over things like same-store sales and box economics. But, those are output metrics. Input metrics that can be controlled and influenced by focusing on individual customer behavior—things like guest frequency, recency, and spend—drive transactions and therefore profitability.
Transitioning from transactional thinking to customer thinking changes the game for everyone on the team. The CEO and board have to shift their focus from same-store sales to Customer Cohort Charts. Finance now concentrates on customer economics instead of box economics. Marketing starts looking at lifetime return on ad spend versus return on ad spend. The list goes on.
It may sound like a big undertaking, and it is. But budgets are tight, and the last thing you want to do is waste time and money attracting low-value customers. When you make every business decision with your most valuable customers in mind, you can ensure that every dollar spent will have a high ROI and drive profitability for your business long-term.
Ready to Make the Shift?
In order to successfully harness the power of Customer Intelligence, restaurant brands need to be able to access 100% of their guest data from a single view and inject it into every part of the business—from operations to marketing. Only then, can they individualize each interaction and make data-driven business decisions that boost revenue, customer loyalty, and operational efficiency, all while bringing customer acquisition costs down.
The path forward for restaurants is building a profitable future with data and those who focus on customers (and their lifetime value) will win. So the question becomes: Does everything in your brand actually revolve around the customer?
Photo Credit: Marcus Herzberg from Pexels