Latest / Franchise Conversations with Fexingo: Buying, Running, and Scaling Franchise Businesses / Franchisees Profit from Loyalty Programs Done Right
Transcript
- Lucas: So Luna, I was reading the latest numbers from a loyalty platform that works with a bunch of franchise brands, and the stat that jumped out at me was this: members spend on average sixty-seven percent more per visit than non-members. That's a massive gap. Luna: Sixty-seven percent? That's huge. But I feel like every franchise has some kind of loyalty program now. Are they all actually working that well? Lucas: That's exactly the thing. The programs that work are not the generic 'buy ten get one free' punch cards. The most successful ones are built on a completely different logic. And I think the difference comes down to whether you're rewarding transactions or building a relationship. Luna: Okay, I'm intrigued. What does that look like in practice? Lucas: So there are two main approaches: points-based and value-based. Points-based is the classic airline miles model — earn points, redeem for free stuff. Value-based means you get something tangible immediately, like a free drink on your third visit, regardless of how much you spent. Luna: And which one wins? I've seen both. Lucas: The research is pretty clear that value-based programs drive higher repeat rates. When you make the reward feel attainable, customers are more motivated to come back. Think about a coffee shop: if I know I get a free latte after three visits, I'm more likely to stop by three times in a week than if I'm accumulating points that might take a month to add up. Luna: So it's about immediacy and perceived value. That makes sense. But how do franchisees set the thresholds so they don't give away the store? Lucas: That's the million-dollar question. You have to crunch the numbers on your average ticket and your margins. Let's say your average sale is eight dollars and your food cost is thirty percent. A free item costs you about two forty in food cost. If you give it after ten visits, you're spending twenty-four cents per visit to retain that customer. That's a steal compared to what you'd spend on advertising to acquire a new one. Luna: So the reward threshold is key. But what about the data side? I imagine loyalty programs give you a ton of insight into who your customers are. Lucas: Absolutely. And that's where the real long-term value lies. You can see what they buy, when they come in, what they don't buy. Then you can craft offers that actually resonate. For example, one franchise I read about used their data to identify customers who bought coffee but never tried their breakfast sandwiches. They sent out a targeted offer for a discounted sandwich, and the redemption rate was over forty percent. Luna: Forty percent redemption is phenomenal. But does that work at the franchisee level, or is that something the corporate brand has to do? Lucas: Some franchisors provide the loyalty platform, but the smartest franchisees are customizing their offers based on their local customer base. The brand might give you a framework, but you can decide which products to feature in your local store's offers. That's where you can really shine. Luna: So speaking of shining, I've been thinking about how we keep this show going for free, and I know we're not big on asking for stuff. But if you've gotten value from our conversations, maybe consider supporting us on Buy Me a Coffee. It's a simple way to keep us ad-free. Lucas: Yeah, we keep the show free because we believe in the value of these conversations. If they've helped you think differently about your business, a small contribution goes a long way. You can find us at buy me a coffee dot com slash fexingo. Luna: No pressure, just if it's helped. Now, back to loyalty. One thing I'm curious about: how do you handle the balance between franchisee autonomy and brand consistency? I've seen programs where the local store offers different rewards than the national ad, and it gets confusing. Lucas: That's a real challenge. You don't want to undermine the brand, but you also want to serve your local market. The best approach is to have a core national program that everyone follows, and then allow franchisees to add local 'bonus' rewards that don't conflict with the national framework. For example, the national program might give points for every dollar, but a local store can offer double points on a slow Tuesday afternoon. Luna: That's a smart way to boost traffic during off-peak hours. Have you seen that work in practice? Lucas: Yeah, a fast-casual franchise I read about did exactly that. They offered double points on weekday afternoons between two and four, and their sales during that window jumped by eighteen percent within a month. It's a simple lever. Luna: Eighteen percent is nothing to sneeze at. But I've also heard that some franchisees are moving away from third-party loyalty apps because of fees. What's the deal there? Lucas: Third-party apps can charge monthly fees plus transaction fees, and sometimes they own the customer data, not you. Some franchisees are building simple in-house programs with a punch card or a basic app. The key is to make sure the cost of the program doesn't eat into the margin gains. Luna: So what would you say is the biggest mistake franchisees make with loyalty programs? Lucas: I think it's treating loyalty as a one-size-fits-all checkbox. If you just slap a program together and don't think about the economics or the data, you're not going to see results. The other big mistake is not promoting the program enough. You can have the best program in the world, but if customers don't know about it, it's useless. Luna: That's a good point. So what's the first step for a franchisee who hasn't started yet? Lucas: Start small. Don't invest in a fancy app right away. Test a simple punch card or a basic digital loyalty program for a few months. Track the numbers: repeat visit rate, average ticket size, and how many people actually redeem. Once you see the data, you can decide if it's worth scaling up. Luna: And if it doesn't work, you've learned something without losing a fortune. Lucas: Exactly. And remember, loyalty programs are not just about giving stuff away. They're about creating a habit. If you can get a customer to visit one extra time a month, that's a significant revenue boost over a year. The math is pretty compelling. Luna: So do you have an example of a franchise that really nailed this? I could use a concrete story to share with my friend who owns a franchise. Lucas: There's a regional coffee chain that revamped their loyalty program from a points-based system to a value-based one. They offered a free drink after five visits, and they saw membership grow by forty percent in six months. Their repeat visit rate went up by twenty-five percent. It's a perfect illustration of the power of simplicity. Luna: That's the kind of story that makes you want to try it. So if someone's listening and wants to revamp their loyalty program, what's one thing they can do this week? Lucas: Pull your sales data and calculate your average transaction value and your product margins. Then model out a few different reward thresholds and see what the cost per retained customer looks like. That's the foundation. Once you have that, you can design a program that's both attractive to customers and profitable for you. Luna: That's a solid takeaway. And it's not as complicated as it sounds. Lucas: Right. The key is to be intentional. Don't just copy what the brand does. Think about your local customers, your margins, and your goals. When you do that, loyalty becomes a real competitive advantage, not just a marketing gimmick.