Industry News

Is It Better to Build or Buy Loyalty Tech?

Guidance on how to determine which route QSRs should go

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Editor's Note: It's a very valid question, and the answer isn't the same for every restaurant. As you read on, keep in mind that no matter the benefits of a loyalty program, if it's inaccessible and cumbersome for members they will participate less, ultimately making your program less effective. Mobile channels like SMS and Mobile Wallet can help overcome these barriers and are easy to execute, once you've determined where your data will be housed and how it will be accessed.

Whether consumers are in the mood for a burger, pizza, coffee or ice cream, they have endless choices when it comes to quick service restaurants (QSRs). In fact, there are around 200,000 QSRs currently operating in the U.S., according to most estimates. And while traffic to these restaurants may be lower compared to previous years, it seems consumers are spending more when they make a pitstop. In fact, Revenue Management Solutions' analysis of U.S. QSRs in 2021 indicated that quantity per transaction was up 14.3% when compared to two years prior.

With consumers seemingly spending more, now is the perfect time for QSRs that aren't already in the game to consider the new age of loyalty — that is, reward programs that are largely driven by a streamlined, flexible and mobile-first experience. All of these attributes increase the likelihood of long-term customer satisfaction, brand advocacy and positive word-of-mouth.

When you think about loyalty programs in this industry, big chains tend to come to mind, including dominant players like Starbucks. But what is it that makes the Starbucks Stars program stand out? Some argue that it's all about technology. This program in particular ties point of sale (POS) to the customer's account allowing a quick phone scan to manage the redemption.

For QSRs that are considering revamping or launching a loyalty program, they should also consider the technological aspects that drive these programs. With this consideration comes the critical decision to build or buy loyalty technology.

To build or to buy?  

The build-versus-buy concept certainly isn't new. It's been widely debated across multiple industries for years. For QSRs, making this decision comes down to a few key considerations: core competencies and expertise, having the ability to scale, maintaining control and overall cost, to name a few.

Third-party loyalty technology integrations provide QSRs with access to a dedicated team of professionals who strictly focus on loyalty solutions. This means internal resources won't be caught up in loyalty tech management; they can focus instead on their regular day-to-day duties. Technology partners also offer QSRs opportunities to scale their loyalty solutions along with the growth of their business. This includes expanding alternative redemption options, increasing engagement and opportunities for partnerships, and also allowing more access to customer information and insights through analytics tools.

And because the program will be built upon loyalty technology that already exists, the startup costs will be lower. In short, choosing to "buy" can offer more flexibility and convenience while keeping costs down. On the other hand, drawbacks can include potential disruptions if supplier changes occur, challenges arise around establishing exclusivity, and competition increases from other QSRs that are also taking advantage of this new wave of loyalty.

Building a technology solution in-house allows QSRs full control over their loyalty platform and offerings, as well as their approach to information gathering and analysis. Maintaining control is typically the main driver behind making the decision to build, along with having the ability to test different loyalty program approaches. And, if the QSR is large enough, they may have an internal team dedicated to loyalty technology. In this instance, costs can be lower than outsourcing.

The challenges with the build option largely depend on whether the QSR is part of a franchise model, which can offer its own layer of complexity with narrow margins and need for high volume. Other challenges can include pulling staff away from their traditional responsibilities to manage the technology and knowledge gaps if those managers leave the business. This can disrupt the entire loyalty program that was built, creating a poor customer experience and leaving customers feeling frustrated.

The keys to success  

Previously, cost and lack of corporate control have held QSRs back from loyalty programs. But competitive pressure over the past couple of years has pushed them toward making the decision to launch.

Since every QSR has a unique set of business goals and objectives, any decision around loyalty programs and technologies really comes down to what the restaurant is looking to accomplish long term. Whether building loyalty technology in-house or outsourcing, the key to program success lies within offers and promotions. And while such offers may add costs beyond discounts, they also offer options like the ability to test new menu options, particularly with the most loyal customers. This keeps QSRs competitive and helps them to create deeper relationships with their customers.

For QSRs that are looking to keep customers coming back time and time again while rewarding them for increasing their spend, choosing the direction to take with technology is no small decision. Regardless of buying or building in-house, the solutions that tend to stand out are those that are personalized, mobile-first, encourage ease of use, create a seamless experience at check-out, and are mutually beneficial for both the brand and the consumer.

 

This article was written by Len Covello from QSR Web. News Features and was legally licensed through the Industry Dive Content Marketplace. Please direct all licensing questions to legal@industrydive.com.

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