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Companies Are Misusing Net Promoter Scores: Here’s How to Fix That

Net promoter score (NPS) first captured the imagination of the C-Suite in the early aughts (2000-2009) due to the customer insights it provided and its simplicity. In a nutshell, it’s a single number that tells companies how satisfied their customers are.

But despite how revolutionary NPS was when it was introduced, the metric has serious limitations when it comes to driving profitable growth. Intrinsically, it assumes all customers are equally valuable to the company. They’re not. The most effective way for CMOs and CFOs to use NPS to guide their growth and drive their stock price is to pair it with customer lifetime value (CLV).

 

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Restaurants That Thrived During Covid Can Thank On-the-Go Diners

Few industries were hit as hard by the pandemic as the restaurant business. After much of the country went into lockdown, restaurants-like almost every other business-were forced to close their doors. For many, though, the closure has been permanent.

But some parts of the industry-namely the quick-serve and fast-casual segments- have served as something of a laboratory for digital marketing during the crisis.

The restaurants that refocused their online ordering and loyalty programs on their most valuable customers not only survived-they thrived. Their experience provides an important lesson for digital marketers in other industries.

As in other sectors, the success of a restaurant depends on capturing a disproportionate share of the wallets-or in this case, stomachs-of a small number of customers: the high-value targets.

These customers only make up about a quarter of fast-casual diners, yet account for 48% of the revenue and 63% of online ordering. In a typical month, these diners will visit an average of 14 different restaurant brands and spend about $12,000 a year dining out. This presents an enormous opportunity for digital marketers.

To capitalize on this opportunity, restaurants need to tailor their promotional messages and offers to these diners. They can do this by redirecting the marketing budget aimed at the 20% to 30% of customers who are disengaged and, for the most part, immune to marketing. By doing those two things, restaurants can double their ROI.

At the same time, it is important to recognize that not all high-value customers are the same. Two different types of customers comprise this 25%: the On-the-Go Convenience Seeker and the Social Restaurant Lover.

The first is motivated by ease; they seek a seamless experience that fits the contours of their busy lifestyle and want an easy-to-use app for convenience. They belong to loyalty programs but rarely use them. The second persona is motivated by the social aspects of dining out; they seek a sense of connection, community and VIP treatment.

When Covid hit and many restaurants had to close their doors or shift to curbside pickup, the habits of the on-the-go diner didn’t change. They accounted for 33% of money spent on meals and 36% of digital orders both in January 2020 (before Covid hit) and in July 2020 (after the crisis was well underway)-cementing them as the most valuable target. Even after the start of the pandemic, this group spent an average of $1,005 a month on meals.

“A good app went further than discounts or a loyalty program.”

Keep in mind, these are individuals who often order breakfast, lunch and dinner nearly every day because they find it easier than preparing food at home. Messaging around simple reordering, convenience and speed was key to engaging these core customers during the crisis. A good app went further than discounts or a loyalty program.

Wingstop is one restaurant chain that doubled down on digital amid the pandemic and saw major returns, according to investor reports. The company generates more revenue today than before the crisis hit. According to a March 2021 Goldman Sachs investor report, Wingstop “is viewed by investors as a Covid beneficiary, and not as a reopening story.”

A Goldman Sachs investor report from a month later notes that Wingstop’s return on its investment in digital during the pandemic prompted the chain to announce another three- to five-year investment to “rebuild its domestic technology stack, build a business intelligence platform and advance the end-to-end customer process. The core purpose of this is to make the company’s digital ordering and processing system, a key part of its growth, easily transferable to international markets, where current partners may not have a presence.”

Other industries have the opportunity to benefit from what the dining sector learned during Covid. Whether they compete in banking, retail or travel and hospitality, companies should focus on their most valuable customers: those who buy often and at higher-dollar values because their underlying preferences and motivations are aligned with the features, benefits and value proposition of the brand. Skewing the marketing budget toward these customers and away from the disengaged-while continually fine-tuning the product, message and experience- can drive growth and profitability.

This is an example of how some fast-casual restaurants capitalized on Covid and the changes to dining habits that it catalyzed. While these restaurants were limited in what they could do to appeal to the social diners-because the communal aspect of restaurants had vanished-they figured out how to effectively market to the on-the-go diner.

What marketers can learn from tiktok and dating apps about loyal customer relationships

Our Chairman and CEO Chris Kuenne wrote an intuitive AdWeek piece what marketers can learn from the personalization techniques of on-line dating sites and TikTok. These companies are built on unique data that reveals the underlying the ‘why’ of consumer behavior, rather than just the ‘what’ they clicked on or bought. We have found this level of insights are critical to creating enduring relationships and ultimately higher customer lifetime value.

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Identifying the Highly Engaged and Highest Value Consumers for Restaurants

As consumers shift their dining behaviors in the wake of the COVID crisis, restaurant brands able to capture and consolidate meal occasions among the most valuable customers will survive the crisis and be positioned to thrive on the other side. Rosemark has built a Quantitative Persona™ structure for the dining category that identifies the highest engaged and highest value dining consumers based on how their motivations and preferences drive their restaurant chain brand choice. Value is concentrated: Overall spending and digital ordering is highly concentrated within the target QP clusters barChart_Incidence-Spend-DigitalOrders These 2 target QP Clusters not only represent significant opportunity for restaurant brands due to their volume, but they have unique motivations and preferences that drive their outsize volume and digital ordering. Restaurant brands that can personalize their digital ordering experience and marketing communications to these target QPs to drive greater share of meal occasions and greater volume. The On-the-Go Convenience Seeker QP Cluster are the highest value consumers whose busy lifestyle and preference to eat out vs cooking at home drive their behavior of eating out nearly 40 times per month. They have a high preference for digital ordering and they spread their meal occasions across up to 14 different restaurants per month. On-the-Go_Motivation_green On-the-Go_AgeResidence_green On-the-Go_pieCharts_green The Social Restaurant Lover QP Cluster are the highest engaged dining consumers. They are actively engaged in loyalty programs and expect frequent updates from their favorite restaurants. They view dining out as an opportunity to socialize with co-workers, friends and family. SocialRestaurantLovers_Motivation_blue SocialRestaurantLovers_AgeResidence_blue SocialRestaurantLovers_pieCharts_blue Rosemark is partnering with leading marketing services and technology companies to implement QP-based personalization with their dining clients. We look forward to sharing more information on the Rosemark Dining Category Quantitative Persona Structure and identifying opportunities to apply the QP Method to other categories, please contact Rosemark for more details.

Digital Marketers: Don’t Let Amazon, Google & Facebook Gain More Power

Over the last decade, digital marketers have allowed (and directly enabled) the digital behemoths to become the dominant point of access for consumers to connect to their brands. During the COVID crisis, this power has only intensified, as consumers now rely almost exclusively on these points of access and delivery to define nearly all of their shopping and buying behavior.  This leads brand marketers to ponder the ultimate nightmare:

Will the direct relationship between their brand and their consumers be another COVID casualty?

At Rosemark, we believe the answer must be an emphatic no!

The most powerful tools in marketers’ arsenals have always been those related to discovering deeper insights as to why consumers buy and translating that insight into more personally relevant products, messages and promotional offers. That’s why we at Rosemark have built a scalable method to segment consumers based on how their underlying motivations and preferences drive their brand choice and usage behaviors.  We call this method, Quantitative PersonasSM (QP).  We are leveraging this Intellectual Property as the centerpiece for the group of interrelated loyalty, e-commerce and analytics companies we are in the process of acquiring, in service of placing the control of the consumer relationship back in the hands of brand marketers.

An example of the power of Quantitative Personas is the dining category (quick serve restaurants, fast casual and casual dining), for which we recently completed building out a QP model.  This category has gone through a seismic shift as their front doors are closed and they must now serve all their customers through drive-up, curbside pickup and third-party delivery services. We identified the 2 QPs who represent 27% of consumers and 65% of the digital ordering volume before the COVID crisis.  These Personas have meaningfully different motivations to order out, preferences in loyalty programs and the role social media plays in their brand choice and decision to share positive experiences with their friends.  We believe the restaurant brands which convert these types of insights into personalized electronic ordering and loyalty programs will win a disproportionate share of these 2 dining QPs and in so doing will not only survive the COVID crisis but will thrive on the other side of it.